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
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           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  








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          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  








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          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.








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          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