BILL ANALYSIS AB 151 Page 1 Date of Hearing: April 21, 2003 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Hannah-Beth Jackson, Chair AB 151 (Vargas) - As Amended: February 25, 2003 SUBJECT : Air pollution: importation of electrical energy: mitigation fee. SUMMARY : This bill requires any person who imports electricity into the state from northern Mexico to pay a 1 mill ($0.01 cent) per kilowatt-hour air contaminant emission mitigation fee for the electricity. EXISTING LAW : 1)Pursuant to the Federal Clean Air Act (42 U.S.C. 4701, et seq.): a) Requires states to implement all feasible measures to achieve and maintain federal ambient air quality standards under their state implementation plans (SIP). b) Requires new and modified stationary sources to undergo new source review as part of the permitting process, which includes the application of Best Available Control Technology (BACT) and pollution offsets. c) Defines BACT as the most up-to-date methods, systems, techniques, and production processes available to achieve the greatest feasible emission reductions for given regulated air pollutants and processes. 2)Pursuant to the California Clean Air Act (Health and Safety Code Section 39000, et seq.): a) Requires air districts to consider cost-effectiveness, technological feasibility and other factors prior to adopting control measures affecting stationary sources of air pollution. b) Requires air districts to consider, and make available to the public, their findings related to cost effectiveness of a control measure. AB 151 Page 2 THIS BILL : 1)Requires any person who imports electrical energy into the state, or causes electricity to be imported into the state, to pay an electrical generation fee to the state Air Resources Board (ARB) to mitigate the air pollution caused by the electricity generation. 2)Provides that the mitigation fee is applicable if the electrical generating facility meets all of the following: a) It is located in Mexico, within 100 kilometers of the US border, and within an air basin shared by a state air district and Mexico. b) It was not constructed using the BACT for air contaminants. c) It first produced electricity after January 1, 2003. 3)Specifies that the fee collected by ARB shall not exceed 1 mill per kilowatt-hour, and shall not exceed the costs ARB determines is necessary to mitigate the environmental or health impacts of the air pollution. 4)Provides for distribution of the mitigation fees to the local air district that ARB determines is directly impacted by emissions of the offending electrical generating facilities. 5)Makes clear that "electrical generating facility" means every generating unit of a powerplant that is located at a common site in Mexico, and that if more than one unit exists at a powerplant project, all of the electrical generating units are deemed part of one electrical generating facility. FISCAL EFFECT : Unknown. COMMENTS : 1)Background According to the author's office, California and Mexico border communities face severe air pollution challenges from a variety of sources. Power plants are among the most recent sources of air pollution that have developed in the region. These power AB 151 Page 3 plants, located in Mexico, may not meet California's air quality standards, but import electrical energy for sale in California. The Mexican Government has recently approved the construction of three electric power generation projects near Mexicali, located about 3 miles south of the international border and about 12 miles southwest of Calexico, California. Termoelectrica de Mexicali, owned by Sempra Energy, is a 500-megawatt (MW) facility that produces electricity for export into the United States. La Rosita, a 750 MW facility across the street, is owned and operated by InterGen. In addition, InterGen also owns Energia de Baja California. Half of the electricity from the La Rosita plant will be sold to Mexico, the remaining half will be exported into California. According to the author's office, while Termoelectrica meets California clean air requirements, the La Rosita plant meets Mexican, but not Californian clean air requirements. According to the author's office, the La Rosita plant will emit 1900 tons of nitrous oxide annually, while the Termoelectrica de Mexicali plant will only produce 190 tons annually. InterGen counters that its bid on a contract to supply power to Mexico was based on the requirement that bidders must comply with Mexican air regulations, and now that the contract has been awarded, no changes are allowed to the contract, except as specifically provided in the contract. Thus, it would be difficult to shut down its operation to install BACT, and cost prohibitive given the circumstances under which the contract was bid. InterGen further contends that its Mexicali plant is one of the cleanest in Mexico and is cleaner than more than 50% of the plants currently operating in California. 2)Imperial County Air Emissions Imperial County has been designated as a federally "transitional" status for ozone and federally "moderate" non-attainment for PM10 (particulate matter fewer than 10 microns in size). The County as a whole is also designated as state "moderate" non-attainment for both PM10 and ozone (for which Nitrous Oxides (NOx) are a precursor). If emissions from AB 151 Page 4 generating facilities in Mexico do not mitigate to BACT emission control levels, the emissions have the potential to violate the National Ambient Air Quality Standards (NAAQS) for exceeding legal emission rates in Imperial County. Further NAAQS violations could result in a federal re-designation to a more serious level of non-attainment. If this should happen, past emissions reductions in the county and future growth and expansion would be threatened. Businesses wishing to locate in the County would be required to offset their emissions at a higher ratio (2:1 instead of 1:1 under current regulations), and they would be required to meet more stringent rules and regulations. According to the Imperial County Air Pollution District, years of gains in stationary source Nox reductions in Imperial County will be lost if emissions from these plants are not controlled. According to the author's office, by implementing a mitigation fee, the bill will act as a deterrent to power plants in Mexico that want to sell power to California, but do not meet California air emission standards. 3)Does the Bill Set a Bad Precedent ? This bill provides that power plants located in northern Mexico that do not meet BACT standards may pay a mitigation fee to the state and continue to sell their energy to California. While it is true that California purchases energy from a number of power generators out of state that do not necessarily meet BACT standards, it may be more appropriate for the state to look at a nondiscriminatory fee or policy that targets pollution from all competitors seeking access to California's electricity market, but do not meet California's emission standards. To not establish a standard for all out-of-state importers of electricity may give competitive advantage to older, relatively dirty plants with access to California's market over plants that already meet BACT standards. 4)Federal Legislation On January 9, 2003, Senators Feinstein and Boxer introduced S.107, the Southern California Border Air Quality Protection Act. That bill would prevent power plants along the California-Mexico border from using natural gas from the United States unless these plants agree to comply with California emission standards. AB 151 Page 5 According to Senator Feinsten's office, the legislation was placed on hold after InterGen announced plans, on January 28th, to install pollution control technology on all four units of its new power plant in Mexicali. The North American Commission for Environmental Cooperation, created pursuant to the North America Free Trade Agreement (NAFTA), projects that the demand for electricity this decade will increase by 66% in Mexico, 21% in the United States, and 14% in Canada. REGISTERED SUPPORT / OPPOSITION : Support Imperial County Board of Supervisors Imperial County Air Pollution District City of El Centro El Centro Chamber of Commerce Sierra Club California Clean Power Campaign Environmental Working Group Coalition of California Utility Employees Opposition None on file Analysis Prepared by : Kyra Emanuels Ross / NAT. RES. / (916) 319-2092