BILL ANALYSIS                                                                                                                                                                                                           1
       1





                                           
                 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                DEBRA BOWEN, CHAIRWOMAN
         

         SB 1269 -  Peace                                  Hearing Date:  May  
         21, 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:
          
         Mirant Delta LLC
         Mirant Portrero LLC
         Mirant Corporation
         Utility Consumers' Action Network

          Oppose:
          
         Independent Energy Producers Association
         Calpine
         Sempra Energy






         Lawrence Lingbloom 
         SB 1269 Analysis
         Hearing Date:  May 21, 2002