BILL ANALYSIS AB 151 SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Byron D. Sher, Chairman 2003-2004 Regular Session BILL NO: AB 151 AUTHOR: Vargas AMENDED: July 1, 2003 FISCAL: Yes HEARING DATE: July 7, 2003 URGENCY: No CONSULTANT: Kip Lipper SUBJECT : AIR POLLUTION: IMPORTATION OF ELECTRICAL ENERGY: MITIGATION FEE SUMMARY : Existing law : 1) Requires the state Air Resources Board (ARB) to adopt and enforce state ambient air standards for the control and reduction of air pollution, and to enforce federal ambient air standards for reduction of air pollution. 2) Requires air districts to adopt and implement local and regional programs to reduce air pollution and to achieve state and federal ambient air standards. These responsibilities include the adoption and enforcement of requirements for new and modified power plants to ensure that emissions from such facilities are mitigated and are in compliance with federal and state law and regulations. 3) Under the Warren-Alquist Energy Conservation and Development Act (Division 15 (commencing with Section 25000) of the Public Resources Code), requires the California Energy Commission (CEC) to certify thermal power plants that generate 50 megawatts or more of electricity to ensure that they have mitigated the adverse environmental effect, including any air emissions, from those power plants. This bill : 1)Requires persons who import electricity into the state from power plants located in Mexico within 100 kilometers (KM) of AB 151 Page 2 the US border, which are located in air basins shared by a California air district, and which did not install Best Available Control Technology (BACT) when constructing the plant to pay an electrical generation fee to mitigate the effects of air pollution from the facility. 2)Requires the mitigation fee to be assessed at not more than the cost of mitigating air pollution from the power plant as determined by the ARB, and that it not exceed 1/100th of a cent per kilowatt-hour (kWh) of electricity imported, and after January 1, 2006, authorizes the ARB to reduce the fee below 1/100th of a cent per kWh imported if it determines that it will reduce emissions of air contaminants. 3)Requires that fees collected under the bill's provisions be deposited in the Imported Electricity Air Pollution Mitigation fund and to be made available for expenditure upon appropriation by the Legislature to provide revenues to affected air districts for projects to mitigate air pollution from the power plants contributing to the air pollution. 4)Specifies that districts may not expend more than 10 percent of the funds received from the ARB under this program for administrative costs. COMMENTS : 1) Purpose of Bill . According to the sponsor of this measure, Imperial County: "California border communities face many air pollution challenges from a variety of sources, including electrical generation facilities. Presently, there are electrical power generation facilities being constructed in Mexico, near the California border that may not meet ARB's air quality standards. The intent of AB 151 is to encourage these and future power plants, which will send power to California, profit from Californians, and impact California's air quality, to meet the ARB's Best Available Control Technology (BACT) standards for NoX, Carbon monoxide, and particulate matter. AB 151 Page 3 "Authorities in Mexico approved the construction of two electric power generation projects in Mexicali, one built by Sempra and one by InterGen. The InterGen project is called "La Rosita." The Sempra and La Rosita projects are located approximately 1.5 miles apart from each other, 3 miles from the international board, and approximately 12 miles southwest of Calexico in Imperial County." 2) Opponents State Bill Imposes Illegal "Tax" on Energy, Fails to Address Real Air Pollution Problems In Imperial Valley . Opponents to this measure, primarily anti-tax groups and the InterGen Company which owns a powerplant on the other side of the US/Mexican border, assert that this measure imposes a tax that violates state law, federal law, and treaties such as the North American Free Trade Agreement (NAFTA) [It should be noted that the Legislative Counsel has keyed this measure as a majority vote "fee" measure and has issued a written opinion stating that the bill is not preempted by the federal Power Act (16 U.S.C. Sec. 791 et. seq.] . The opponents state that the bill would impose a tax on facilities located in Mexico that generate electricity in a much less polluting manner than facilities from which energy is generated both in the Imperial Valley and imported from other areas. They contend that the LA Rosita facility is the cleanest power plant ever built in Mexico; one key reason why it does not meet California BACT standards is that there are differences between those standards and the ones required by the Mexican Government in order to build the plant. The opponents also state that the bill will discourage the development of clean, reliable new generation at a time when the state needs to face increasing power demands. 3) Importation of "Dirty Power" Key Concern; Should Bill Be Expanded to Address other High-Polluting Imported Power ? The premise of this measure appears to be that if utilities and other parties wish to purchase electricity from facilities that do not meet California air standards, they should pay a fee to ensure that the air pollution from AB 151 Page 4 those facilities is mitigated. If the premise is valid for Mexican power plants, the author and committee may wish to consider whether it is valid for facilities located in other states from which California utilities import electricity. For example, there are at least two high-polluting coal fired power plants located in the Southwest and Utah from which utilities purchase power. These plants contribute significantly to visibility problems, and other air quality problems in California. 4) Given that Fee is Paid By Persons Importing Electricity, Should Fee Be Collected By Entity other than ARB? As presently drafted, this measure imposes the fee on persons who import electricity into the state from Mexican power plants. Presumably, the persons paying the fee are utilities or other electricity customers. Putting aside the ratepayer implications of the bill (something that will be reviewed in the second policy committee to which the bill was referred) the ARB has little expertise or information on who purchases electricity and how much they purchase [Conversely, they do have a great deal of information and expertise on the air quality side of the issue]. In order to minimize administrative costs, and reduce duplication of effort, the author and committee may wish to consider whether another state entity (the CPUC or CEC?) should collect the fee. 5) Criteria For Energy From Power plants Subject to Bill's Provisions May need Clarification and Revision . The language on page 3, lines 11-15, which sets forth parameters for power plants generating electricity subject to the fee raises several concerns. First, it is unclear why the bill establishes distance requirements (page 3, line 11), and limits on the date on which a plant started generating (Page 3, line 12). If a plant is operating over the border and contributing to air pollution problems in the state presumably it should pay the fee regardless of how close it is to the border or when it started generating electricity. Second, the requirement specifying the use of BACT may not achieve the author's stated intent. BACT is a temporal AB 151 Page 5 determination made by the ARB and districts at the time a plant is constructed. What may have been BACT in the 1980's and 1990's is not BACT today. Therefore, it may make sense to revise this provision to specify a date certain by which the BACT was installed. 6) Criteria for Expenditure of Funds By Districts Should be Tightened Up . As presently drafted, this measure allows air districts to expend funds subvened to them by the ARB under the bill's provisions "for the projects within their jurisdiction that the district determines will mitigate the environmental or health impacts" of subject Mexican power plants (Page 4, lines 7-11). This provision raises several concerns. First, the funds should not be spent on retrofitting power plants owned by private parties in the region or paying other costs that should be borne by regulated entities (those entities should pay those costs). Second, the funds might otherwise be spent on programs administered by the board to reduce pollutants, particularly for sources in the Imperial Valley. (For example, the Carl Moyer Program helps fund diesel retrofits and replacements for heavy-duty engines.) The author and committee may want to clarify and refine the district expenditure provisions to address these concerns. 7) Technical Amendments Needed . This measure needs several technical amendments: a) On page 3, line 18 the bill specifies that the fee may not exceed 1/100th of a cent per kWh. On page 3, lines 23-28, the board is authorized to lower the fee to below that amount if it determines that it would further enhance reductions in air emissions. Given that the first provision already allows the ARB to adopt a lower fee, it is unclear why the second provision is needed. b) On page 4, line 3 the bill limits funds to districts "directly" impacted by pollution from Mexican power plants. Depending upon how this adjective is read, it may effectively limit the bill to two districts; San Diego and Imperial County. Current state air laws allow consideration of "indirect" contributions of air pollution to districts. This term should be clarified. AB 151 Page 6 c) On page 4, line 12, the bill authorizes up to ten percent of the funds to be used for district administrative costs. While districts do need funds to implement clean air programs, a ten percent cap seems excessive. Most programs have a two percent cap or something similar. 8) Double Referral to Energy, Utilities and Communications Committee . The Senate Rules Committee has referred this measure to this committee and the Senate Utilities, Energy, and Communications Committee. Should this measure be approved by this committee, the do pass motion should include the action to re-refer the bill to the Senate Energy, Utilities and Communications Committee. SOURCE : Imperial County Board of Supervisors SUPPORT : American Lung Association of San Diego and Imperial Counties, California Air Pollution Control Officers Association, Clean Power Campaign, Coalition of California Utility Employees, El Centro, El Centro Chamber of Commerce, Environmental Working Group, Imperial Valley Air Pollution Control District, Imperial and Mexicali Clean Air Stakeholders, Latino Issues Forum, San Diego, Sierra Club California OPPOSITION : California Taxpayers' Association, InterGen