BILL ANALYSIS                                                                                                                                                                                                    1
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   SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                  DEBRA BOWEN, CHAIRWOMAN


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|SB 110 - Peace                |Hearing Date:April 13,    | S|
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|As Amended:April 5, 1999      |                          | B|
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                         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