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  









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             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.










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           "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  









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              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  









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              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.









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              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