BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN SB 1269 - Peace Hearing Date: May 14, 2002 S As Amended: May 9, 2002 FISCAL B 1 2 6 9 DESCRIPTION Under existing law , the California Energy Commission (CEC) may amend the conditions or revoke certification of a power plant for a material false statement in the application, significant failure to comply with the terms or condition of approval, or a violation of the Warren-Alquist Act. The CEC may impose civil penalties for false statements or failure to comply of $50,000 per violation, plus $1,000 per day up to $25,000 ($75,000 total). This bill : 1.Increases penalties for false statements or failure to comply to $75,000 per violation plus $1,500 per day up to $50,000 ($125,000 total). 2.Requires a project owner to commence power plant construction within 12 months of CEC certification. 3.Authorizes the CEC to revoke its certification or impose penalties if a project owner fails to meet construction milestones without demonstrating good cause. 4.Authorizes the CEC to extend the start of construction an additional 12 months if the project owner reimburses the CEC for its costs of licensing the project. 5.Authorizes the CEC to transfer the certification to the California Consumer Power and Conservation Financing Authority (Power Authority) if the Power Authority elects to pursue the project itself. In this case, the Power authority is required to reimburse the original certificate holder for its costs associated with permitting the project. 6.Allows a project owner to sell its license, which would reset the 12-month deadline for the new project owner. 7.Authorizes the CEC and the Power Authority to adopt emergency regulations to implement the bill. 8.Modifications to, or replacement of, existing power plants, as well qualifying facilities and self-generation projects, are exempt from the bill. BACKGROUND Under the Warren-Alquist Act, the California Energy Commission (CEC) has exclusive authority to permit thermal power plants 50 megawatts and larger. The Act provides for comprehensive review and authorizes the CEC to override other state, local or regional decisions and certify a power plant it determines is required for "public convenience and necessity." The CEC's power plant siting process is designed to strike a balance between project applicants' interest in certainty and the public's interest in environmental protection and prudent planning of generation resources. In approving a proposed power plant, the CEC must find that the facility's construction and operation is consistent with a variety of environmental and electrical standards. CEC review of a proposed power plant relates mostly to project design and the impact of a proposed project. Once a project is approved, the CEC generally doesn't have continuing regulatory authority over its construction or operation. The CEC is authorized to revoke the certification of an approved power plant under certain conditions, although it has not previously done this. Executive Order D-25-01, issued by the Governor on February 8, 2001, requires the CEC to establish specific performance milestones for both initiation of construction within one year of certification, and for the construction phase of the project. Under D-25-01, failure to begin construction by the deadline or failure to perform in accordance with the milestones without prior approval by the CEC based on a showing of good cause constitutes a forfeiture of the certification. D-25-01 expired December 21, 2001. This bill generally requires the CEC to revoke its certification, or impose other unspecified penalties, if a project owner fails to begin construction within 12 months, without a demonstration of good cause. This requirement is subject to numerous exceptions and exemptions. According to the author, an issued license both permits and obligates the licensee to construct the plant as proposed. However, to the extent that the licensee can choose not to exercise the privilege to construct that's embedded in the license, the state will have invested public resources to further only a private speculative purpose with no corresponding public benefit. Thus, it's important that the state ensure the process through which it licenses power plants isn't vulnerable to private speculative objectives that have no corresponding public benefit. COMMENTS This bill is similar to SB 86XX (Peace), which was approved by this committee on July 10, 2001, had been pending in the Assembly Energy Costs and Availability Committee, and has now died due to the adjournment of the Second Extraordinary Session. This bill differs from SB 86XX in the following respects: 1.The deadline for commencement of construction has been extended from six months to 12 months. 2.Project owners may "buy" an additional 12 months by reimbursing the CEC for its costs of licensing the project. 3.Sale of a license prior to its "expiration" would trigger a new 12-month deadline for the new project owner. 4.Modifications to, or replacement of, existing power plants, as well qualifying facilities and self-generation projects, are exempt from the bill. These changes likely would make enforcement of a 12-month "use it or lose it" deadline the exception, rather than the rule, and would seem to diminish the original bill's objective of preventing the CEC's siting process from being used for speculative purposes. For example, a project owner could earn an additional 12 months by selling its license to an affiliate, who in turn could earn another 12 months by selling it back. Or an applicant seeking to construct a 500 megawatt power plant could qualify the project for exemption from the bill as a "replacement" by decommissioning an existing 50 megawatt power plant. Given that the bill grants the CEC broad discretion to issue extensions upon a showing of good cause, or impose penalties short of license revocation, the author and the committee may wish to consider whether these additional specific exceptions are necessary or desirable. This bill authorizes the CEC and the Power Authority to adopt emergency regulations to implement the bill. The author and the committee may wish to consider whether this approach, which exempts the regulations from Office of Administrative Law review, is justified. POSITIONS Sponsor: Author Support: None on file Oppose: None on file Lawrence Lingbloom SB 1269 Analysis Hearing Date: May 14, 2002