Application for Certification Granted on July 8, 1987

Project Managers: Roger E. Johnson, Rick Buell

Staff Counsel: Arlene Ichien

Hearing Officer: Stan Valkosky

Presiding Member: Vice Chair Barbara Crowley

AFC Filing and Data Adequacy

Basic American Foods filed its AFC on September 20, 1985, for a 120 MW cogeneration facility. The Commission identified a list of data deficiencies on November 19, 1986, which the applicant corrected in a series of supplemental filings. The last submission required for data adequacy was made on February 11, 1986.

Project Description

The Basic American Foods Cogeneration Project was intended to supply steam for vegetable drying at the King City plant and electricity for sale to PG&E under a Standard Offer 4 contract. It generally resembled Gilroy Foods (Docket No. 84-AFC-4), a proceeding which had been closely monitored by Basic American Foods in preparation for its own AFC.

The project was located in an industrial section of King City, Monterey County, approximately 45 miles southeast of Salinas. Natural gas was the primary fuel, and NOx emissions would be controlled using selective catalytic reduction (SCR) as the Best Available Control Technology.

Issues - Demand Conformance

Background

This case was dominated by the issue of Demand Conformance, and the project’s difficulty in passing the ER 5 need tests. In order to ultimately prevail, the applicant had to continually upgrade its project, amending the PG&E contract, reducing environmental impacts, and adding environmental benefits. Demand Conformance thus overlapped with the area of air quality, since emissions improvements would help Basic American become needed.

Air quality itself was uncontested. The NOx emissions from the combustion turbine were limited by the use of water injection in the turbine combustor cans and the use of Selective Catalytic Reduction in the Heat Recovery Steam Generator. To partially offset the project emissions, the applicant proposed to shutdown equipment at the neighboring Basic American food processing plant and purchase banked Emission Reduction Credits. However, it was determined by CEC staff and the Monterey Bay Unified Air Pollution Control District that no additional emission offsets or mitigation was necessary, as the air emissions increases and associated impacts were not deemed significant.

ER V recognized that the energy glut had arrived in the PG&E service area, primarily thanks to construction of numerous small qualifying facilities (QFs) over which the CEC lacked jurisdiction, completion of Diablo Canyon, and the availability of energy from out of state. PG&E ended up with an electricity surplus, and the utility abandoned its own powerplant building program. QF applicants at the Energy Commission, especially in the PG&E service area, would now face a stiff burden to establish need under ER V’s criteria.

The ER V System Displacement Need Test and the PMR

Basic American had to pass one of the ER V need tests, which became progressively more difficult. Thus, having failed the Unspecified Reserved Need Test, the applicant confronted ER V’s most stringent challenge, the System Displacement Need Test. The applicant had already reached agreement with PG&E on a contract amendment to become partially dispatchable (similar to Gilroy Foods). Although dispatchability allowed Gilroy Foods to pass the Unspecified Reserved Need Test in 1985, Basic American’s demand conformance problems allowed for no such quick fix a year later.

The System Displacement Need Test required Basic American to meet five enumerated criteria. Applicant’s evidence asserted that it passed all five, while CEC staff testimony claimed that the project failed four out of the five criteria. Contested hearings ensued.

In its April 29, 1987 Presiding Member’s Report (PMR), the Committee found that Basic American satisfied Condition 1 (power sold at or below a utility’s avoided cost [undisputed]), Condition 2 (matching the load conditions of the PG&E service area), Condition 3 (utility oil and gas displacement), and Condition 4 (overall benefit). (Pages 29-49 of the PMR.) The Committee agreed with staff that applicant failed the most difficult criteria of all - Condition 5: "The facility provides significant economic and environmental benefits compared to operating the system without the proposed facility."

The PMR determined that Basic American did not provide a significant environmental benefit when compared to operating the PG&E system without it. The benefit in question involved air quality, and the Committee found a lack of significant air quality improvements from the project. By failing to meet Condition 5, Basic American was unable to pass the System Displacement Need Test, and, in the PMR, the Committee could not recommend certification. (Pages 49-54 of the PMR.)

Environmental Benefit Enhancements

The PMR did allow Basic American to bolster the environmental benefit of its project, such as by obtaining local air emissions offsets, or proposing other creative air quality solutions. Should the applicant attempt to provide these additional environmental benefits, it could petition the Committee to reopen the record and conduct a supplementary evidentiary inquiry. (Page 55 of the PMR.)

Basic American made its motion to reopen the record. At a June 11, 1987 hearing, the applicant offered a 40% reduction in the powerplant’s NOx emissions, $300,000 to fund a methanol (or other alternative low-emission fuel) program for King City vehicles, $35,000 to replace a polluting King City gasoline storage tank, and a promise to either obtain more emissions offsets or provide up to $100,000 for additional environmental enhancement (such as a riparian habitat preserve).

Both CEC staff and the Committee agreed that the addition of this new package resulted in a significant environmental benefit from the project. The record was reopened and Basic American passed Condition 5 of the System Displacement Need Test. Basic American was now in conformity with ER V. (Pages 51-52 of the CEC Decision.)

Adoption

The Energy Commission certified the Basic American Foods Cogeneration Project on July 8, 1987, and the powerplant was constructed.