Proposed Decision Establishes Framework For New Utility Biomethane Procurement Program

Completing a two-year process implementing Senate Bill 1440 (Hueso, 2018), the California Public Utilities Commission (CPUC) has issued a new Proposed Decision setting biomethane procurement targets to reduce short-lived climate pollutant (SLCP) emissions. The Proposed Decision builds on policy recommendations in a Staff Proposal recommending approval of a mandatory biomethane procurement program for California’s four large investor-owned gas utilities – Southern California Gas Company (SoCalGas), Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southwest Gas Corporation (SWG).

The Proposed Decision establishes a structure for approving long-term contracts for pipeline-directed renewable natural gas. The procurement requirements focus on renewable natural gas derived from organic waste diversion. Under a separate law, SB 1383 (Lara, 2017), CalRecycle has established mandatory organic waste diversion requirements. The procurement under SB 1383 will create a new market for RNG from organic waste diversion and would be expanded to other RNG-sources in the longer term. Dairy biogas is not included in the procurement authorizations.

Key recommendations in the Proposed Decision include:

• Adopt the Staff Proposal’s recommended short-term target of procuring biomethane that achieves eight million tons of organic waste diverted annually from landfills by 2025. This target would be allocated among the four utilities according to their proportionate shares of California Cap-and-Trade allowances. To hedge against price increases, the utilities may bank excess procurement, carry over up to 25% of annual deficits for the next three years, trade excess supplies, and procure on behalf of each other.
• Order utilities to file Renewable Gas Procurement Plans (RGPP) and annual reporting on compliance activities and costs.
• Adopt a medium-term target for the utilities to each individually procure 15 percent of their 2020 annual core customer natural gas demand by 2030 and beyond from biomethane. Dairy biomethane is excluded from eligibility for the medium-term procurement target based on an assumption that all dairy biogas is sold into the transportation markets (i.e., the Low Carbon Fuel Standard (LCFS) program).
• Direct utilities to incorporate environmental assessments and social justice impacts in procurement decision-making, and to start procurement as soon as possible, using a preliminary cost effectiveness test that estimates the SLCP reduction and life cycle carbon emissions until a carbon intensity (CI) score is established.
• Address requirements for bio-synthetic natural gas (bio-SNG) quality by establishing carbon monoxide (CO) limits. Implement safety requirements for high levels of hydrogen sulfide (H₂S) in gathering lines by setting H₂S restrictions.
• Require utilities only procure biomethane from facilities that commit to exclusively purchase or lease near-zero or zero-emissions vehicles, and include the related environmental benefit in CI scores.
• Require utilities to prioritize procurement from biomethane facilities that agree not to increase on-site generation of electricity beyond current generation levels, with exception for use of upgraded biomethane in a fuel cell or other non-combustion technology.
• Require utilities prioritize procurement from facilities that employ carbon capture, storage and/or use to avoid venting of CO₂ into the atmosphere, and from facilities that commit to turning their waste product into soil amendment or that employ other GHG-reducing use of waste product.
• Require PG&E and SoCalGas to submit applications for pilot projects to convert woody biomass into bio-SNG and to divert agricultural waste and urban wood waste from landfills to support wildfire prevention and SLCP reduction, with associated costs to be covered through a $40 million set-aside from gas-utility 2022 Cap-and-Trade allowance proceeds that are not already encumbered by climate credits.
• Authorize procurement contracts for a minimum of 10 years and a maximum of 15 years.

The Proposed Decision will not be final until adopted by the CPUC. Comments on the Proposed Decision are due January 24, 2022. Reply comments are due January 31, 2022. The CPUC is expected to vote on the Proposed Decision at its February 10, 2022 meeting.

Contact: Brian Biering or Lynn Haug