BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 590 (Dahle) - Greenhouse Gas Reduction Fund.
          
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          |Version: July 9, 2015           |Policy Vote: E., U., & C. 10 -  |
          |                                |          0, E.Q. 7 - 0         |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 17, 2015   |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  AB 590 would allow moneys from the Greenhouse Gas  
          Reduction Fund (GGRF) to be used by the California Energy  
          Commission (CEC) to maintain the current level of biomass power  
          generation and geothermal energy generation in the state and to  
          revitalize currently idle facilities in strategically located  
          regions.


          Fiscal  
          Impact:  
           Annual costs of $580,000 to the GGRF (special) for every $10  
            million appropriated to this program for the CEC's  
            administrative costs.
           Potential initial costs of up to $316,000 annually for two  
            years then up to $175,000 annually thereafter to the GGRF  
            (special) for ARB to collaborate with CEC on developing  
            quantification methodologies, report on program and project  
            status, and evaluate disadvantaged community benefits. These  







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            costs may result in a decrease in CEC administrative costs.
           Ongoing cost pressures of approximately $330 million to the  
            GGRF (special) for operations and maintenance costs of biomass  
            facilities in California.
           Ongoing cost pressures of approximately $410 million to the  
            GGRF (special) for operations and maintenance costs of  
            geothermal facilities in California.


          Background:  The California Global Warming Solutions Act of 2006 (referred  
          to as AB 32, HSC §38500 et seq.) requires the ARB to determine  
          the 1990 statewide greenhouse gas (GHG) emissions level, to  
          approve a statewide GHG emissions limit equivalent to that level  
          that will be achieved by 2020, and to adopt GHG emissions  
          reductions measures by regulation. ARB is authorized to include  
          the use of market-based mechanisms to comply with the  
          regulations.  All monies, except for fines and penalties,  
          collected pursuant to a market-based mechanism are deposited in  
          the Greenhouse Gas Reduction Fund (GGRF) (Government Code  
          §16428.8).
          Existing law requires that the GGRF only be used to facilitate  
          the achievement of reductions of GHG emissions consistent with  
          AB 32 (HSC §39710 et seq.). To this end, the Department of  
          Finance, in consultation with the ARB and any other relevant  
          state agencies, is required to develop, as specified, a  
          three-year investment plan for the moneys deposited in the GGRF.  
          The investment plan must allocate a minimum of 25% of the funds  
          to projects that benefit disadvantaged communities and to  
          allocate 10% of the funds to projects located within  
          disadvantaged communities. Additionally, the ARB, in  
          consultation with CalEPA, is required to develop funding  
          guidelines for administering agencies receiving allocations of  
          GGRF funds that include a component for how agencies should  
          maximize benefits to disadvantaged communities.


          "Biomass" refers to animal and plant organic residues, primarily  
          including those residues from agricultural and forestry  
          practices. There are various ways in which biomass can be  
          converted into usable forms of energy including heat, steam,  
          electricity, natural gas, and liquid fuels. According to the  
          CEC, the state's generation of solid-fuel biomass electricity  
          peaked at 800 MW during 1990-93 with 66 facilities in operation;  
          thereafter, production diminished with the expiration of the  








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          Biomass Demonstration Program, which provided $10.5 million in  
          loans to 19 biomass projects. The Public Goods Charge also  
          supported biomass operation costs, though this program has also  
          expired. 


          According to the California Biomass Energy Alliance (CBEA), the  
          sponsors of the bill,, there are currently 25 biomass electric  
          generation plans producing 565 MW. In the last twelve months,  
          five facilities have closed and the CBEA believes that more  
          closures are likely as half of the remaining plants have  
          expiring contracts.




          Proposed Law:  
            This bill would direct the CEC to make expenditures to  
          maintain the current level of biomass power generation and  
          geothermal energy generation and to revitalize idle facilities  
          in "strategically located regions."
          To be eligible for funding, the generation facility must meet  
          the following:


           Generate "energy" on or after January 1, 2016, 


           Generate "energy" using wood wastes, residues, or geothermal  
            resources and be sold to a load serving entity.


           Have a generation capacity of over three megawatts.


           Generate "energy" within the state and sold to customers  
            within the state.


           Be certified under the California Renewable Portfolio Standard  
            Program.


          The CEC grants must be prioritized to maximize the reduction of  








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          greenhouse gas (GHG) emissions achieved for each dollar granted.  
          The CEC would be required to work with the ARB to ensure  
          projects would achieve a net reduction in GHG emissions.




          Staff  
          Comments:  To implement this subsidy program, the CEC would  
          incur ongoing administrative costs of approximately $580,000 for  
          every $10 million appropriated to the program. These costs  
          account for a public process to determine the baseline GHG  
          emissions in order to calculate the net benefit of the grants,  
          which is anticipated to be a very contentious issue especially  
          for biomass projects.
          The ARB would also likely incur costs in order to verify GHG  
          emission reductions from the projects. Under existing law, the  
          ARB is required to develop reporting and quantification  
          guidelines for all state agencies that receive GGRF funds. ARB  
          notes that development of quantification guidelines for biomass  
          projects are particularly complex and therefore estimates that  
          it would need two positions at an annual costs of $316,000 for  
          two years then $175,000 ongoing to first develop quantification  
          methodologies, and then to report and oversee ongoing GHG  
          emission reductions. These costs are based on a $50 million  
          grant program. Staff notes that it is unclear whether at least  
          some of ARB's costs are duplicative of CEC administrative cost.  
          As such, to the extent that ARB might be appropriated costs  
          associated with this bill, there may be a corresponding  
          reduction in CEC's costs. 


          This bill would create cost pressures for the support of the  
          existing biomass and geothermal electricity generation  
          facilities in the hundreds of millions of dollars annually. The  
          CEC estimates that the biomass industry has roughly $330,000  
          million in annual operation and maintenance costs and the  
          geothermal industry has roughly $408 million in costs based on  
          2013 data. As there is no limit to the subsidies that could be  
          offered in the program established in this bill, the cost  
          pressures of this bill would be the total annual operating costs  
          of both industries.










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          Staff notes that many incentive programs are structured to help  
          with expanding and developing new capacity. This bill on the  
          other hand, would support existing operations. According to the  
          author's office, such support is necessary to prevent further  
          biomass facilities from closing. However, staff questions  
          whether state subsidies of existing operations could be a  
          disincentive to improve cost efficiency within the industry.


          Staff notes that there are multiple bills being considered by  
          both houses of the Legislature that propose projects that would  
          be eligible to receive GGRF funds. It is unclear how these bills  
          will interact with each other. Staff notes that a discussion on  
          the spending of GGRF is anticipated in August as part of a  
          budget discussion.




          Proposed Author  
          Amendments:  The author intends to make several technical  
          amendments to this bill including that biomass includes wood  
          waste and agricultural waste and that the requirement that the  
          energy be sold to a load-serving entity could also be fulfilled  
          by selling through the Independent System.
          Staff further recommends that the author amend the bill so that  
          the bill discusses the generation of "electricity" rather than  
          "energy."  




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