Second Regular Session Sixty-eighth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 12-0158.01 Jennifer Berman x3286SENATE BILL 12-180 SENATE SPONSORSHIP Schwartz, HOUSE SPONSORSHIP Coram and Hamner, Senate Committees House Committees Agriculture, Natural Resources, and Energy A BILL FOR AN ACT Concerning measures to encourage the use of Colorado forest biomass as a source of renewable energy. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill develops a variety of legislative responses to address the risks caused by diseased and falling trees, pest epidemics, and fire to Colorado's forests and water systems, including: In section 2, encouraging the Colorado state forest service to further collaborate with the United States forest service to address the risk of wildfire in our forest ecosystems; In section 4, encouraging the Colorado economic development commission, in collaboration with the Colorado department of agriculture, to promote forest products derived from Colorado forests; In section 5, encouraging the air quality control commission to identify residential, commercial, and industrial equipment, specifically with respect to equipment fueled by woody biomass, that meets air emissions standards; In section 6, encouraging the Colorado agricultural value-added development board to prioritize silviculture energy grant requests in applying the "advancing Colorado's renewable energy" (ACRE) program and extending funding for the program until fiscal year 2016-17 in section 8; In section 7, expanding the definition of "conservation easement in gross" to include sustainable ecosystem management and reforestation; In section 9, creating renewable energy enterprise areas to promote tax credits and incentives for investments made to businesses and facilities in the woody biomass industry and presenting geographic designations of the areas to an enterprise zone review task force for review, and in section 3 authorizing the executive director of the department of revenue to promote the tax credits; In section 10, amending Colorado's renewable energy standard to encourage the public utilities commission to give priority to biomass derived from insect-killed or insect-diseased timber and other forest products in providing credit multipliers; and In section 11, creating a work group to evaluate renewable thermal and cogeneration technologies in Colorado, identify potential investment incentives for the technologies, and explore the development of a renewable energy credit market for these technologies. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly hereby finds and declares that: (a) The state of Colorado is experiencing one of the most significant droughts in recent history. Current data shows that ninety-eight percent of Colorado has been designated in drought condition. (b) Forest health and protection of our watersheds is critical to water quality and availability; (c) Colorado has one of the most at-risk forest ecosystems in the western United States due to four million acres of dead timber and comparatively limited forest management efforts on federal, state, and private lands; (d) While forest health is often seen as a rural issue: (I) More than two million people and nearly nine hundred communities are located in areas of the ten counties along the Front Range that are at risk of wildfires; (II) The forests of the Front Range furnish drinking water to more than two-thirds of the state's population; and (III) Of the four million two hundred thousand acres of the Front Range watershed that are part of the drinking water supply, sixty-five percent are at high risk of post-fire erosion; (e) The general assembly encourages Colorado's timber industry to respond to the crisis with forest management contracts that prioritize critical areas in order to: (I) Bring greater value to wood resources from critical areas, including the wildland-urban interface and watersheds, by utilizing Colorado's emerging biomass energy industry; and (II) Create jobs in forest restoration for rural communities and under-utilized workforce populations such as veterans and the youth corps; (f) To the extent that Colorado's ecosystem and economy operate on interrelated large and small scales to function effectively, state action is needed to implement large-scale solutions; and (g) As stated at the Front Range roundtable in August 2011: "Wildfire and insect epidemics don't recognize political or ownership boundaries. Restoration must occur at a scale large enough to influence the behavior of these forces across the landscape." (2) The general assembly further finds and declares that it supports the work of recharge Colorado and encourages recharge Colorado to: (a) Create a philanthropic fund for the development of distributed generation of biomass energy; and (b) Accept donations into the fund for distribution of loans and grants. SECTION 2. In Colorado Revised Statutes, 23-31-301, amend (2); and add (1) (k) as follows: 23-31-301. Legislative declaration. (1) The general assembly hereby finds that: (k) The coordination of efforts to create landscape-level solutions to restore Colorado forest ecosystems, primarily and, secondarily, to promote the use of clean energy generated from biomass will improve the efficiency of efforts to reach both of these goals and, in the process, can serve to stimulate economic development in rural Colorado. (2) (a) The general assembly hereby declares that it is the public policy of this state to encourage the health of forest ecosystems through responsible management of the forest land of the state and through coordination with the United States secretary of the interior and the United States secretary of agriculture to develop management plans for federal lands within the state of Colorado pursuant to 16 U.S.C. sec. 530, 16 U.S.C. sec. 1604, and 43 U.S.C. sec. 1712, including the use of prescribed and natural ignition fires and other pre-suppression activities, such as the harvest of materials, in order to preserve forest and other natural resources, enhance the growth and maintenance of forests, conserve forest cover on watersheds, protect recreational, wildlife, and other values, promote stability of forest-using industries, and prevent loss of life and damage to property from wildfires and other conflagrations. (b) In addition to any other powers and duties conferred upon the Colorado state forest service by law, the Colorado state forest service shall: (I) Work with the United States forest service on forest stewardship agreements and facilitate contracts authorized by the United States department of agriculture; (II) Work with the United States forest service and the United States bureau of land management on projects authorized under the good neighbor authority, as defined in section 23-31-313 (3), and facilitate forest products sales contracts; (III) Identify areas and prioritize contracts for forest management on public and private lands in priority landscapes as identified in the Colorado statewide forest resource assessment and strategy, initiated in response to a mandate from the United States forest service pursuant to Pub.L. 110-234, with emphasis on water supplies and areas in the wildland-urban interface; (IV) Value forest products on state lands using lowest market value as an incentive to maximize the utilization of these products for timber mill construction or biomass energy generation, as appropriate; (V) Encourage the removal of wood material with the primary harvest in accordance with forest management protocols promoting healthy forest ecosystems. This prioritization does not create a disincentive for using prescribed fires. (VI) Continue to actively manage forest stewardship plans for all state-owned lands, including plans for long-term, reliable feedstock sources for woody biomass; (VII) Collaborate with the United States forest service and the bureau of land management to: (A) Develop a reliable, statewide woody biomass supply estimate for the next ten years; and (B) Make those estimates publicly available; (VIII) Support public education programs on the whole spectrum of forest management issues; (IX) Work with Colorado's water community, including the basin roundtables created in section 37-75-104, C.R.S., to identify significant areas of priority landscapes that pose post-fire soil hazard risk to water supplies in the watershed for preventative restoration and fuel mitigation; and (X) Explore and identify potential funding sources for forest management and energy projects in Colorado, including state and federal tax incentives, cost-share and grant programs, and financing tools such as loans, bonds, and contracts. SECTION 3. In Colorado Revised Statutes, 24-35-103, add (5) as follows: 24-35-103. Powers of executive director - deputies. (5) In addition to any other powers and duties conferred upon the executive director of the department of revenue by law, the executive director may: (a) Evaluate and apply to the greatest extent possible the tax credits and incentives available in renewable energy enterprise areas, created in section 39-30-113, C.R.S., to the forestry and biomass industries; and (b) Make information about the tax credits and incentives publicly available. SECTION 4. In Colorado Revised Statutes, 24-46-104, add (3) as follows: 24-46-104. Powers and duties of commission. (3) The commission shall promote forest products derived from Colorado forests. SECTION 5. In Colorado Revised Statutes, 25-7-105, add (20) as follows: 25-7-105. Duties of commission - rules. (20) The commission may, within existing resources: (a) Analyze a range of residential, commercial, and industrial equipment for air emissions standards; (b) Identify equipment that meets the emissions standards; (c) Publicly post a statement of the parameters for equipment fueled by woody biomass, as defined in section 39-30-113 (10) (b) (I), C.R.S., that is smaller than one million British thermal units, as defined in section 8-20-201 (1.3), C.R.S., per hour and include a list of woody biomass equipment that meets the emissions standards. SECTION 6. In Colorado Revised Statutes, 35-75-205, amend (1.5) as follows: 35-75-205. Grants, loans and loan guarantees, and equity investments - agriculture value-added cash fund - created - repeal. (1.5) (a) In state fiscal years 2009-10 through 2011-12 2016-17, the general assembly shall appropriate five hundred thousand dollars, or so much thereof as has been transferred pursuant to section 39-29-109.3 (2) (h), C.R.S., from the agriculture value-added cash fund to the department, for allocation to the board to promote the feasibility and development of agricultural energy-related projects. (a.5) The board is encouraged to give priority to silviculture energy grant requests from renewable energy enterprise areas, created in section 39-30-113, C.R.S., in promoting the feasibility and development of agriculture energy-related projects. (b) This subsection (1.5) is repealed, effective July 1, 2012 2017. SECTION 7. In Colorado Revised Statutes, amend 38-30.5-102 as follows: 38-30.5-102. Conservation easement in gross. (1) "Conservation easement in gross", for the purposes of this article, means: (a) A right in the owner of the easement to prohibit or require a limitation upon the property; (b) or An obligation to perform acts on the property; or (c) With respect to a land or water area, airspace above the land or water, or water rights beneficially used upon that land or water area, owned by the grantor, a use or condition appropriate to the retaining or maintaining of such retain or maintain the land, water, airspace, or water rights, including improvements, the following uses or conditions: (I) Improvements predominantly in a natural, scenic, or open condition; (II) or for Wildlife habitat; (III) or for Agricultural; (IV) Horticultural; (V) Wetlands; (VI) Recreational; (VII) Forest, including sustainable ecosystem management and restoration; (VIII) or Any other use or condition consistent with the protection of open land, environmental quality, or life-sustaining ecological diversity; or (IX) A use appropriate to the conservation and preservation of buildings, sites, or structures having historical, architectural, or cultural interest or value. SECTION 8. In Colorado Revised Statutes, 39-29-109.3, amend (2) (h) as follows: 39-29-109.3. Operational account of the severance tax trust fund - repeal. (2) Subject to the requirements of subsections (3) and (4) of this section, if the general assembly chooses not to spend up to one hundred percent of the moneys in the operational account as specified in subsection (1) of this section, the state treasurer shall transfer the following: (h) (I) To the agriculture value-added cash fund created in section 35-75-205 (1), C.R.S., to promote agricultural energy-related projects and research, for the state fiscal year commencing July 1, 2008, through the state fiscal year commencing July 1, 2011 2016, five hundred thousand dollars. (II) This paragraph (h) is repealed, effective July 1, 2013 2018. SECTION 9. In Colorado Revised Statutes, add 39-30-113, 39-30-114, and 39-30-115 as follows: 39-30-113. Renewable energy enterprise areas - mapping - consideration by task force - repeal. (1) The state forester or the state forester's designee shall identify the portion of any municipality, county, group of contiguous municipalities or counties, or special district established pursuant to article 1 of title 32 as a renewable energy enterprise area if the area has a population of no more than one hundred fifty thousand individuals, as calculated pursuant to section 39-30-103 (1.3), and meets one or more of the following additional criteria: (a) The area is an area of high risk of wildfire; (b) The area has a post-fire erosion threat to its water supplies; (c) The area has significant amounts of dead timber or falling trees; or (d) The area has suffered adverse economic impacts as a result of wildfire or significant amounts of dead timber. (2) The state forester or the state forester's designee shall designate and map the areas in Colorado experiencing a high risk of wildfire or significant amounts of dead timber in the wildland-urban interface and the water supply areas, utilizing data from the Colorado state forest service and the United States forest service. The state forester or the state forester's designee shall then identify and map areas that have suffered adverse economic impacts as a result of wildfire or significant amounts of dead timber. The state forester or the state forester's designee shall update the geographic designations annually. (3) (a) The state forester, or the state forester's designee, shall provide the geographic designations developed in subsection (2) of this section to the enterprise zone review task force formed pursuant to House Bill12-1241, enacted in 2012. The enterprise zone review task force shall include in its review the renewable energy enterprise areas created in section 39-30-114, the application of credits pursuant to section 39-30-115 (1), and the impact of the woody biomass and renewable energy industry in areas of high fire risk. (b) This subsection (3) is repealed September 1, 2012, if House Bill 12-1241 is not enacted or does not become law. 39-30-114. Renewable energy enterprise areas - criteria - reporting - credits - termination. (1) The state forester, or the state forester's designee, shall provide the geographic designations developed in section 39-30-113 to the director of the Colorado office of economic development, who shall determine whether to recommend that an area qualifies as a renewable energy enterprise area based on the geographic designations and any other relevant information available. An area does not need to be located in an enterprise zone, as designated pursuant to section 39-30-103, to qualify as a renewable energy enterprise area. The Colorado economic development commission, created in section 24-46-102 (2), C.R.S., shall make all decisions concerning the designation or termination of a renewable energy enterprise area upon the recommendations of the director of the Colorado office of economic development. (2) In proposing an area for designation as a renewable energy enterprise area, a local government shall submit a development plan to the director of the Colorado office of economic development. The local government shall include in the development plan: (a) The boundaries of the proposed area; (b) The proposed area's potential for renewable energy business development and job creation; (c) The specific economic development objectives that the proposed area seeks to achieve, including: (I) Specific objectives that have a measurable outcome and, for those measurable outcomes: (A) How the outcome will be measured; and (B) The specific, verifiable data that the proposed area will use to measure the outcome; (II) The measures that the local government and the private sector will undertake to support the objectives; (d) The individual or agency that the proposed area designates to be the administrator of the proposed area; and (e) Any other pertinent information that the director of the Colorado office of economic development may require. (3) The Colorado economic development commission, after consultation with the executive directors of the department of labor and employment and the department of revenue, may approve the designation of up to fifteen areas as renewable energy enterprise areas. (4) (a) If a municipality, county, group of contiguous municipalities or counties, or special district containing a previously designated renewable energy enterprise area does not appear in the updated geographic area designations determined and mapped by the state forester pursuant to section 39-30-113 (2), the Colorado economic development commission shall terminate the renewable energy enterprise area within the municipality, county, or group of contiguous municipalities or counties as a renewable energy enterprise area as of January 1 following the issuance of the updated geographic area designations. (b) The termination of a renewable energy enterprise area does not restrict, curtail, or otherwise terminate any tax credits that a taxpayer earned based on transactions completed while the municipality, county, or group of contiguous municipalities or counties was designated a renewable energy enterprise area. (5) The director of the Colorado office of economic development shall require a renewable energy enterprise area administrator to submit the annual documentation, to the extent applicable, listed in section 39-30-103 (4) (b) and (4) (b.5). (6) The director of the Colorado office of economic development, on behalf of the Colorado economic development commission, shall submit an annual report to the general assembly summarizing the annual documentation submitted by renewable energy enterprise area administrators each year pursuant to subsection (5) of this section. The director of the Colorado office of economic development shall make an annual presentation to the legislative audit committee, or its successor committee, that reviews and summarizes the information in the report submitted to the general assembly. (7) (a) On or before September 30 of each calendar year, the director of the Colorado office of economic development shall transmit to the department of revenue the data regarding income tax credits allowed pursuant to this section that are certified by the renewable energy enterprise area administrators from January 1 through June 30 of the same calendar year. (b) On or before March 31 of each calendar year, the director of the Colorado office of economic development shall transmit to the department of revenue the data regarding income tax credits allowed pursuant to this section that are certified by renewable energy enterprise area administrators from July 1 through December 31 of the previous calendar year. (8) Any taxpayer located in a renewable energy enterprise area, as determined by the Colorado economic development commission pursuant to subsection (1) of this section, is eligible to claim a credit pursuant to this article if: (a) The taxpayer meets the qualifications for claiming the credit, as set forth in this article; and (b) The taxpayer applies the credit to an investment made to: (I) A business in the woody biomass industry. For purposes of this section, "woody biomass" means urban wood waste, mill residue, slash, brush, insect-killed timber, insect-diseased timber, naturally dead timber, or agricultural waste. (II) A facility serving a business in the woody biomass industry; (III) A business in the forest products industry; or (IV) A facility serving a business in the forest products industry. (9) If the amount of the credit allowed pursuant to this section exceeds the amount of income taxes otherwise due on the income of the taxpayer in the income tax year for which the credit is being claimed, the amount of the credit not used as an offset against income taxes in said income tax year may be carried forward as a credit against subsequent years' income tax liability for a period not exceeding ten years and must be applied first to the earliest income tax years possible. Any credit remaining after the ten-year period is not refundable to the taxpayer. 39-30-115. Taxpayers located outside of a renewable energy enterprise area. (1) Any taxpayer located outside of a renewable energy enterprise area established in section 39-30-114 is eligible to claim a credit pursuant to this article if: (a) The taxpayer meets the qualifications established in section 39-30-114 (8) other than the location of the taxpayer; and (b) The taxpayer applies the credit to an investment made to a business or facility that receives feedstock from a renewable energy enterprise area, as determined by the Colorado economic development commission pursuant to section 39-30-114 (1). (2) This section takes effect July 1, 2014. SECTION 10. In Colorado Revised Statutes, 40-2-124, amend (1) introductory portion and (1) (c) (IX); and add (1) (a) (II.5) as follows: 40-2-124. Renewable energy standard - definitions - net metering - legislative declaration. (1) Each provider of retail electric service in the state of Colorado, other than municipally owned utilities that serve forty thousand customers or fewer, shall be considered is a qualifying retail utility. Each qualifying retail utility, with the exception of cooperative electric associations that have voted to exempt themselves from commission jurisdiction pursuant to section 40-9.5-104 and municipally owned utilities, shall be is subject to the rules established under this article by the commission. No additional regulatory authority of the commission other than that specifically contained in this section is provided or implied. In accordance with article 4 of title 24, C.R.S., the commission shall revise or clarify existing rules to establish the following: (a) Definitions of eligible energy resources that can be used to meet the standards. "Eligible energy resources" means recycled energy and renewable energy resources. The commission shall determine, following an evidentiary hearing, the extent to which such electric generation technologies utilized in an optional pricing program may be used to comply with this standard. A fuel cell using hydrogen derived from an eligible energy resource is also an eligible electric generation technology. Fossil and nuclear fuels and their derivatives are not eligible energy resources. For purposes of this section: (II.5) "Forest biomass" means biomass from: (A) Trees that are dead, diseased, or felled as a result of beetle or other insect infestation on any public or private land; and (B) Slash or brush produced from any public or private land. (c) Electric resource standards: (IX) (A) For purposes of stimulating rural economic development and for projects up to thirty megawatts of nameplate capacity that have a point of interconnection rated at sixty-nine kilovolts or less, each kilowatt hour of electricity generated from renewable energy resources that interconnects to electric transmission or distribution facilities owned by a cooperative electric association or municipally owned utility may be counted for the life of the project as two kilowatt hours for compliance with the requirements of this paragraph (c) by qualifying retail utilities. This multiplier shall not be claimed for interconnections that first occur after December 31, 2014, and shall not be used in conjunction with another compliance multiplier. For qualifying retail utilities other than investor-owned utilities, the benefits described in this subparagraph (IX) apply only to the aggregate first one hundred megawatts of nameplate capacity of projects statewide that report having achieved commercial operations to the commission pursuant to the procedure described in this subparagraph (IX). To the extent that a qualifying retail utility claims the benefit described in this subparagraph (IX), those kilowatt-hours of electricity do not qualify for satisfaction of the distributed generation requirement of subparagraph (I) of this paragraph (c). The commission shall analyze the implementation of this subparagraph (IX) and submit a report to the senate local government and energy committee and the house of representatives committee on transportation, and energy, or their successor committees, by December 31, 2011, regarding implementation of this subparagraph (IX), including how many megawatts of electricity have been installed or are subject to a power purchase agreement pursuant to this subparagraph (IX) and whether the commission recommends that the multiplier established by this subparagraph (IX) should be changed either in magnitude or expiration date. Any entity that owns or develops a project that will take advantage of the benefits of this subparagraph (IX) shall notify the commission within thirty days after signing a power purchase agreement and within thirty days after beginning commercial operations of an applicable project. (B) The commission authorized to encourage utilities to prioritize forest biomass projects in applying the multiplier established in sub-subparagraph (A) of this subparagraph (IX). SECTION 11. In Colorado Revised Statutes, add 40-2-130 as follows: 40-2-130. Colorado thermal energy work group - legislative declaration - repeal. (1) Because the biomass business model supports renewable electricity, renewable heat, and renewable cogeneration of electricity and heat, it is necessary to evaluate the landscape of renewable thermal technologies and renewable cogeneration technologies in Colorado. (2) There is hereby created the Colorado thermal energy work group. The work group, working within existing resources, consists of: (a) The director of the governor's energy office or its successor office, or the director's designee, who shall convene the work group no later than July 1, 2012; (b) A member of the commission; (c) No more than seven members appointed by the members specified in paragraphs (a) and (b) of this subsection (2) who have demonstrated expertise in at least one of the following areas: (I) Geothermal energy; (II) Solar thermal energy; (III) Biomass thermal energy; (IV) Utilities with a thermal distribution network; or (V) Conservation. (3) The purpose of the work group includes, without limitation: (a) Identifying the scope of innovative or renewable thermal and cogeneration incentives to be considered, including: (I) Solid and gaseous biomass; (II) Solar thermal energy; (III) Ground and water source heat pumps; (IV) On-site biogas; (V) Deep geothermal energy; (VI) Energy from waste; and (VII) Thermal generation from other resources; (b) Identifying potential renewable thermal and cogeneration incentives nationally and internationally that could serve as models for Colorado; (c) Identifying and assessing financial incentives available for renewable thermal and cogeneration technologies; (d) Determining the best practices for a distributive generation structure; (e) Working with the commission to explore potential tax credits or incentives that may be offered to utility companies that provide rebates for renewable thermal and cogeneration installations; (f) Exploring the development of a thermal renewable energy credit market, including: (I) Determining the parameters for renewable thermal facilities, both residential and commercial, that would qualify for credits; and (II) Evaluating the eligibility for cogeneration facilities to qualify for the credits; (g) (I) Defining a standard for preferred energy efficiency and conservation goals. (II) In determining the standard, considering the capture of greenhouse gases. (h) Developing a list of policy recommendations for submission to the sixty-ninth general assembly in 2013; (i) Creating a voluntary database of metered, performance data from all types of renewable thermal technologies, including both newly or recently installed technologies; (j) Exploring the applicability of the multiplier created in section 40-2-124 (1) (c) (IX) to projects utilizing energy generated from woody biomass and determine whether the multiplier should be expanded in scope or duration; and (k) Identifying ways that the commission can expand demand-side management to encourage utility customers to switch to a source of renewable thermal heat. (4) The work group shall create an initial report by November 1, 2012, and submit a final report to the house of representatives committee on agriculture, livestock, and natural resources and the senate committee on agriculture, natural resources, and energy, or their successor committees, by January 1, 2013. The report must summarize the work and findings of the work group and include specific legislative recommendations regarding the issues identified in subsection (3) of this section. (5) This section is repealed, effective July 1, 2013. SECTION 12. Effective date. This act takes effect on passage; except that section 39-30-115, Colorado Revised Statutes, as enacted in section 9 of this act, takes effect July 1, 2014. SECTION 13. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.