BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 590 (Dahle) - Greenhouse Gas Reduction Fund. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: July 9, 2015 |Policy Vote: E., U., & C. 10 - | | | 0, E.Q. 7 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 17, 2015 |Consultant: Marie Liu | | | | ----------------------------------------------------------------- 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 AB 590 (Dahle) Page 1 of ? 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 AB 590 (Dahle) Page 2 of ? 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 AB 590 (Dahle) Page 3 of ? 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. AB 590 (Dahle) Page 4 of ? 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." -- END --