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