California Energy Commission Suspends RPS Eligibility Guidelines Related to Biomethane

On March 28, 2012, the California Energy Commission ("CEC") voted unanimously to suspend the Renewable Portfolio Standard ("RPS") eligibility guidelines for certification of power plants generating electricity using biomethane. The suspension stems from the CEC's concern that biomethane injected into natural gas pipelines may not fulfill the mandate of California Public Utilities Code section 399.11, et seq. as amended by Senate Bill X1-2 ("SBX1-2") in 2011. SBX1-2 increased the California RPS to 33% and established a preference for electric power generation that provides more environmental benefits to the state by displacing in-state fossil fuel consumption, reducing air pollution within the state and helping the state meet its climate change goals by reducing emissions of greenhouse gases associated with electrical generation. The CEC also voiced a lack of confidence in the reporting methods used to verify whether biomethane is delivered via pipeline to the designated RPS-certified plant and whether the RPS attributes of the biomethane are correctly allocated.

In the CEC's Renewable Portfolio Standard Eligibility Guidebook (4th ed.), adopted in 2010 (the "Guidebook"), the CEC identified biomethane as a renewable resource and allowed power plants that use biomethane to generate electricity to be certified as RPS-eligible facilities. The Guidebook defines biomethane as (1) biogas such as landfill gas, digester gas or gas derived from biomass that is (2) upgraded or otherwise conditioned so it can be transported to a power plant via the natural gas transportation pipeline system. Before the CEC's suspension, biomethane was considered an RPS-eligible fuel if it was injected into a pipeline, extracted at a designated power plant and used to generate electricity. The injection point was required to be on an interstate pipeline in the Western Electricity Coordinating Council region or connected to a pipeline that delivers gas into California or, if the RPS-certified facility is located outside California, to the facility. The volume of biomethane injected, its measured heat content and the volume of natural gas used at the designated power plant were required to be accurately metered to quantify the amount of RPS-eligible electricity produced by the power plant. The plant operator entered into contracts for the purchase of biomethane and for the delivery of the biomethane with every pipeline or storage facility operator from the biomethane injection point to the extraction point. The environmental attributes of the biomethane were conveyed to the power plant operator along with the gas itself, for purposes of electricity generation at the designated power plant.

The CEC adopted the following conditions governing the suspension of the RPS eligibility guidelines for biomethane:

1. All provisions in the Guidebook that allow a power plant to be certified as RPS-eligible if the power plant uses biomethane to generate electricity were suspended.
2. The suspension took effect at 5 p.m. PDT on March 28, 2012, and will remain in effect until the CEC lifts the suspension.
3. Power plants that are already certified retain their RPS eligibility. These plants may continue to use biomethane procured under contracts with sources specifically identified in the power plant's approved RPS certification application, subject to the following limitations:
   1. The plant continues to use the biomethane in accordance with the requirements of the edition of the Guidebook under which the power plant was certified for the RPS;
   2. The power plant's use of biomethane is limited to the biomethane procured under contracts with sources specifically identified in the power plant's approved application for RPS certification;
   3. To ensure that the amount and availability of biomethane supplied to an RPS-certified power plant is not increased after the suspension takes effect, power plant operators must provide the CEC with adequate documentation of the biomethane supplied to the power plant prior to March 28, 2012; and
   4. Any extension of a biomethane contract term, increase in biomethane supply or other change in the supply contract that increases the amount or availability of biomethane supplied to the RPS-certified power plant will require an amendment to the power plant's RPS certification.
4. Power plants that have been pre-certified for the RPS by the CEC will remain pre-certified and will be subject to the RPS certification requirements in place when the power plant applies for RPS certification.
5. Complete applications for RPS certification and pre-certification must be hand delivered to the CEC no later than 5 p.m. on March 28, 2012, or must be postmarked no later than March 28, 2012. Complete applications for RPS certification and pre-certification received before the deadline will be processed in accordance with the Guidebook. To be complete, applications for RPS certification shall include the information and documentation specified in the Guidebook. Any application received after the deadline will not be processed by the CEC and will be returned to the applicant. The CEC deferred consideration of pending applications for RPS certification and pre-certification until an upcoming meeting for which there will be a separate notice.
6. The suspension will not affect the RPS eligibility requirements for power plants that utilize biogas that is produced on the site of production, delivered via a dedicated pipeline or delivered to the power plant via a truck or rail car.
7. CEC staff was directed to gather additional information from applicants that have submitted applications for RPS certification and pre-certification to verify the quantities and amount of biomethane supplied and the terms under which those supplies are provided. Staff will provide this information to the Commissioners.

• The CEC may consider amendments to a facility's current certification related to changes in a biomethane supply contract identified in the RPS certification application.
• The CEC may consider applications for certification during the suspension from those facilities that are currently pre-certified.
• RPS certification may be granted for future or prospective biomethane supplies provided for in a pending application. Pending applications for certification do not need to provide documentation demonstrating that biomethane to be supplied to the facility was already produced and injected into the pipeline system before the date of the application for RPS certification.

The suspension of biomethane RPS certification procedures was not welcome news to the waste-to-energy industry. Over several hours of public comment at the CEC meeting, biogas proponents testified that it appears counterproductive to the goals of SBX1-2 and AB-32 to hinder the construction of projects that capture and control the release of methane into the atmosphere. Moreover, the industry is already struggling with low natural gas and PPA prices--the added uncertainty produced by the CEC's suspension will have a chilling effect on proposed biomethane projects looking to enter the California market, as well as on existing projects seeking RPS contracts with power plants in California. Utility gas buyers may still be willing to purchase biogas for their facilities, but the price they are willing to pay and the delivery terms they will insist on remain to be seen.

If you have any questions about the issues raised in this alert, please contact a key contributor.