BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN ------------------------------------------------------------ |SB 110 - Peace |Hearing Date:April 13, | S| | |1999 | | |------------------------------+--------------------------+--| |As Amended:April 5, 1999 | | B| |------------------------------+--------------------------+--| | | | | |------------------------------+--------------------------+--| | | | 1| |------------------------------+--------------------------+--| | | | 1| |------------------------------+--------------------------+--| | | | 0| |------------------------------+--------------------------+--| | | | | |------------------------------+--------------------------+--| | | | | ------------------------------------------------------------ DESCRIPTION This bill amends the California Energy Commission's (CEC) powerplant siting process to eliminate the "integrated assessment of need" requirement and expand the exemption of natural gas powerplants from the site evaluation process. KEY QUESTIONS 1)If, through the elimination of the integrated assessment of need, the CEC's statewide planning function is no longer linked to its siting function, should it retain its exclusive siting authority or its authority to override state and local laws in siting a powerplant? 2)Is there a need for an initial site evaluation, known as a notice of intention (NOI), for proposed natural gas powerplants in a deregulated generation market? BACKGROUND The Warren-Alquist Act established an exclusive process for siting of thermal powerplants 50 megawatts and larger that was intended to guard against overbuilding of powerplants and provide comprehensive environmental review and predictable, one-stop permitting of applications. The Act requires the CEC to develop long-term forecasts of state energy needs, which serve as a basis for planning and certification of individual powerplant facilities. The Act grants the CEC exclusive authority to certify powerplants and authorizes the CEC to override other state, local or regional decisions and certify a powerplant it determines is required for "public convenience and necessity." The first step in the siting process is the requirement that an applicant file an NOI, which is intended to provide alternative sites for the CEC to evaluate. An NOI describes the location, design and operation of the preferred site and alternative sites. The CEC evaluates the sites based on environmental impact, connection to grid, need and compatibility with the existing system. The NOI process also includes specific requirements for CEC consultation with other federal, state, regional and local agencies, including detailed analysis and comment requirements for the California Coastal Commission and the San Francisco Bay Conservation and Development Commission for sites proposed to be located within their jurisdictions. The law generally requires that at least two alternative sites be identified prior to moving to the next step in the siting process, the application for certification (AFC). However, since the siting process was established in 1975, a number of statutory exemptions to the NOI requirement have been established. Current statutorily exempt projects include modifications to existing facilities, demonstration projects, site-specific facilities like geothermal powerplants, and natural gas powerplants that result from competitive solicitation or negotiation. The CEC has interpreted the natural gas powerplant exemption to apply to any natural gas powerplant that intends to sell its product into the Power Exchange. As a result, all recent applications submitted to the CEC have been granted an exemption from the NOI process. This bill codifies the CEC's practice by expanding the existing exemption to include all natural gas powerplants, regardless of their competitive status. This assumes that all future applicants would sell their products into the competitive market and would make the CEC exemption determination a "no-brainer," thereby easing the burden on applicants filing for exemptions. The rationale for allowing a blanket exemption for natural gas powerplants is that, in a competitive market, the NOI function of identifying an acceptable site is the obligation of the applicant, not the CEC. The more substantive next step in the siting process is consideration of the AFC, which is a CEQA-equivalent project evaluation process. In approving an AFC, the CEC must find that the facility's construction and operation is consistent with a variety of environmental standards and that the facility conforms with the CEC's integrated assessment of need (IAN). The IAN is determined through the development of the CEC's Electricity Report, which is a comprehensive planning and forecasting assessment addressing the supply and demand for electricity. According to the CEC, in response to restructuring, the most recent IAN stated that any proposed project is found to be needed if the total number of megawatts does not exceed a numerical cap that the CEC determined could be needed to satisfy statewide peak demand and maintain system reliability (6737 MW). Because this cap is sufficiently high that it is not likely to be exceeded, as a practical matter, the current IAN will have no effect on individual facility certification. This bill would eliminate the IAN and contingent siting considerations. Again, the rationale is that, in a competitive market, the determination of whether a facility is needed is the obligation of the applicant, not the CEC. Theoretically, market consequences will discourage applicants from building facilities that aren't needed. COMMENTS 1) Does the CEC still know best? This bill raises a question about the continuing relevance of the CEC's planning function as it relates to the IAN. Arguably, statewide planning of generation resources has no place in a competitive generation market. However, if the planning function is dismantled, the justification for the CEC's exclusive siting authority may be lessened as well. The construction of the CEC's siting function in the Warren-Alquist Act strikes a balance between project applicants' interest in certainty and the public's interest in environmental protection and prudent planning of generation resources. Part of the justification for vesting exclusive siting authority in the CEC, and allowing it to override local decisions, was that the siting process was tied to a statewide generation planning function. By eliminating that planning function, this bill reopens the balancing act. Absent the IAN, the CEC's evaluation of proposed projects becomes an ordinary CEQA review. As such, some might argue that the CEC no longer has the comprehensive mechanism to justify its exclusive siting and override authority. 2) What is the continuing value of CEC forecasts? CEC forecasts have served as the basis for planning and certification of facilities. Under this bill, the forecasts would no longer serve this purpose. If a primary reason for the forecasts is eliminated, should the forecasts themselves be eliminated also? 3) Will there ever be another non-competitive gas plant? Eliminating the NOI for all natural gas powerplants and relying on competition to identify appropriate sites assumes that all natural gas plants will be participants in the competitive market. What if a municipal utility proposes to construct a new natural gas powerplant? Should it then be subject to the NOI requirement? POSITIONS Support: California League of Food Processors California Municipal Utilities Association Independent Energy Producers Oppose: None reported to Committee. Lawrence Lingbloom SB 110 Analysis Hearing Date: April 13, 1999