Withdrawn on September 9, 1983

Project Manager: Chris Tooker

Staff Counsel: David Mundstock

300 MW AFC Filing

Shell Oil Company had plans for an 800 megawatt (MW) cogeneration plant at its Belridge Oilfield in Kern County, near Bakersfield. In order to receive a Federal tax credit, Shell needed the Application for Certification (AFC) to be both filed and accepted before the end of 1982. However, Public Resources Code section 25540.6(a) then limited the Notice of Intention (NOI) exemption to cogeneration plants of up to 300 MW "unless the commission, by regulation, authorizes a greater capacity." At the time Shell proposed its 800 MW cogeneration plant, the CEC had never exercised its option to raise the 300 MW ceiling.

To accommodate Shell, the Energy Commission conducted a rulemaking which adopted sections 1763 and 1764 of Title 20, California Administrative Code, allowing larger cogeneration plants to be exempt from the NOI if they were only feasible at a single site. (Docket No. 82-SIT-1, regulations approved December 29, 1982.) Shell intended to first submit an AFC for the 300 MW facility, then amend it to the full 800 MW capacity.

To further accommodate Shell, its 300 MW AFC, submitted on December 16, 1982, was given an extremely fast data adequacy review. In spite of the Air Resources Board (ARB) claim that Shell’s offset calculations were erroneous and inadequate, the Executive Director found the 300 MW AFC to be substantially complete and it was accepted unconditionally on December 27, 1982. (Under the regulations at that time, the Executive Director could unilaterally accept an AFC without any need for Commission action.) Shell thus qualified for the Federal tax credit by meeting the December 31, 1982 acceptance deadline.

The 800 MW Amendment.

Shell filed its AFC amendment on April 11, 1983 bringing the cogeneration plant’s capacity to 800 MW. The Commission determined on May 6, 1983 that the AFC qualified for the new large cogeneration NOI exemption under Title 20, CAC, section 1763, because there were no feasible alternative sites besides the Belridge Oilfield. The 800 MW AFC amendment was accepted as data adequate on May 18, 1983.

In the absence of any rules governing procedures for amendments, the Committee determined that Shell’s amendment was substantial enough to cause the 12 month AFC clock to automatically start over from the new acceptance date of May 18, 1983.

Project Description

Until a 1998 filing, the Belridge Field Cogeneration Project was the largest modern AFC ever reviewed by the Energy Commission. It would burn coal, generating steam for the Thermally Enhanced Oil Recovery (TEOR) process, where the thick, underground oil was heated so that it could be pumped to the surface. At first, most of the project’s steam would be used for oil recovery. But as the oilfield depleted, more steam would go to electricity generation. Finally, after about twenty years, with no recoverable oil left, the project would simply generate about 800 MW for sale to Southern California Edison. Thus, for the remaining fifteen years of its expected life, the project would be purely an electric generation powerplant, no longer a cogeneration facility.

The project’s coal would be delivered to the site by rail, using a spur line that was yet to be constructed. The location of the coal fuel supply and the identity of the railroad that would haul it were both being negotiated by Shell while the AFC was under review.

Potential Issues

Shell withdrew its AFC before any of the potentially significant issues could be fully analyzed or conclusively resolved. We are left with a fairly clear idea as to the nature of those issues, including a few preliminary skirmishes.

Show Me the Documents

The Committee issued its own data request to Shell on May 5, 1983. Commissioner Schweickart, Presiding, and Commissioner Commons directed Shell to provide all contracts or agreements regarding (1) ownership interests in the Belridge facility, and (2) proposed sales of electric power. The Committee wanted these documents to independently verify Shell’s cogeneration status, analyze project alternatives and review need for the facility.

Shell raised a series of objections to this Committee Data Request, especially as it pertained to financial and ownership documents. Shell focused on its status as a Qualifying Facility (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA), as distinguished from a public utility. PURPA, according to Shell, provided an exemption from normal CEC and PUC jurisdiction over a utility applicant’s financial affairs. Shell also asserted that it had already supplied sufficient data in the AFC to enable the issues of Committee interest to be analyzed. The Committee rejected Shell’s arguments and again directed that the documents be produced.

CEC staff stayed out of this dispute, having issued its own more modest data requests on similar subjects, which the applicant did not object to. Shell tried to satisfy the Committee by submitting a summary of key partnership provisions relating to the project. The Committee responded by requesting the Commission to issue a subpoena duces tecum for the documents at the August 10, 1983 Business Meeting.

Shell and the Committee signed a formal compromise agreement on August 10, 1983 that avoided immediate litigation by making the documents available to the Committee and all parties to the proceeding. Shell agreed to provide all the requested documents for inspection (no copying), with Shell retaining custody over the documents, and requiring anyone who saw them to sign a non-disclosure agreement.

It is unclear whether this compromise would have broken down had the Belridge AFC proceeded to the evidentiary phase. In subsequent siting cases, little or no effort was made to obtain QF financial data due to a lack of relevancy. On the other hand, QF/utility electricity sales contracts have routinely been submitted to the CEC since Belridge because the CEC found them necessary for a demand conformance analysis. Applicant concerns regarding non-disclosure have been addressed in accordance with the CEC confidentiality regulations. (See, Title 20, California Code of Regulations, section 2505.)

Conversion from Cogeneration to Non-Cogeneration

Shell wished to know if, in the future, it could legally convert its facility from a cogeneration plant (exempt from the NOI under Public Resources Code section 25540.6(a)), to an electric generation powerplant, minus cogeneration, without having to file an NOI.

This issue was argued at length, leading to a Committee Order dated May 17, 1983, requiring any powerplant certified as a cogeneration facility under Public Resources Code section 25540.6(a) to maintain cogeneration for its entire lifetime. CEC staff found this approach too rigid at the time, instead favoring a concept under which Shell could amend the AFC, without filing an NOI, once the oilfield had been depleted.

Clearly, Shell would be able to file such an amendment today within the scope of Title 20, California Code of Regulations, section 1769. The Energy Commission’s response to the SEPCO Petition for License Modification, Docket No. 92-AFC-2A, indicates that an applicant who builds the cogeneration project as described in its AFC, can later modify it to eliminate the cogeneration requirement under appropriate circumstances. In my opinion, Shell’s conversion approach would not be controversial in the contemporary CEC environment.

Beyond the Forecast Period

The Biennial Report (BR), used for demand conformance purposes at the time, had a 12-year forecast period. Belridge would keep increasing its electricity output until maximum capacity was reached well beyond the forecast period. Thus, the full 800 MW project could not even be analyzed under the BR, preventing a normal finding of either conformance or non-conformance with the forecast.

At various times during AFC review, Assessments Division indicated that they could and could not analyze the need for a facility beyond the 12-year forecast. They were willing to try, but the AFC was withdrawn before they got the chance.

The advent of electric industry restructuring (de-regulation) eliminates this difficulty for contemporary AFCs, because all requirements for the Energy Commission to make demand conformance findings have been repealed.

Coal, Air Quality, and Public Health Issues

Coal is an inherently controversial fuel because of its air emissions. The Natural Resources Defense Council (NRDC) intervened to fight the Shell coal plant, as it has intervened to oppose large coal plants all over the country.

However, to analyze project emissions, the composition of the coal must be known. Coal emissions vary greatly, depending upon the exact type of coal being used. Since Shell never identified its coal supply, no analysis related to public health impacts from coal emissions made any progress. The same was true regarding the potentially hazardous nature of the coal residue left behind after burning. This problem could barely be addressed.

Even the adequacy of Shell’s air emissions offsets was an undetermined question at the time of AFC withdrawal. Calculations involving existing TEOR boiler emissions at the oilfield were both incomplete and controversial. Applicant, CEC staff, ARB, and the local air district, were never in agreement as to the appropriate offset credits calculation methodology.

Land Use Non-conformity: the Waste Disposal Site

Shell’s AFC included a waste disposal site, which the CEC assumed licensing jurisdiction over as an appurtenant facility. (David Mundstock legal opinion dated May 27, 1983.) The Kern County General Plan needed to be amended to an appropriate designation for a waste disposal site in order to eliminate a land use non-conformity. Kern County originally insisted upon an EIR before they would review Shell’s general plan amendment, the classic land use non-conformity "Catch 22" problem.

Staff Counsel explained to Kern County that Public Resources Code section 21080(b)(6) allowed them to amend the general plan and correct the non-conformity without an EIR, because the CEC was lead agency, conducting its own comprehensive environmental review of the entire project under the functional equivalency process. The Kern County Counsel’s Office accepted this approach and became willing to process Shell’s general plan amendment. (See Kern County Counsel memo dated May 2, 1983 and David Mundstock’s legal opinion in response, dated May 27, 1983.)

Out of State Coal Mine Impacts

Belridge presented some unique issues, such as possible review of environmental impacts from an out-of-state coal mine. Once Shell contracted for its coal, the selected coal mine would become part of the project for CEQA purposes (Vol. 58, Attorney General Opinions, p. 614). Public Resources Code section 21080(b)(15) did offer a statutory exemption to California review under CEQA, but only when the out-of-state aspect of the project will receive its own federal or home state environmental analysis.

At the time of withdrawal, it appeared that Shell was shopping for a coal mine that could qualify for this exemption, hoping to put the CEC out of the coal mine environmental impacts business.

Railroad Licensing

Shell’s proposed railroad spur line for delivering the coal was also part of the Belridge project, but it appeared that the CEC lacked licensing jurisdiction. The Interstate Commerce Commission (ICC) had authority to permit the expansion of a railroad under Title 49, U.S.C., section 1(17). Furthermore, Public Utilities Code section 1201 gave the CPUC jurisdiction over railroad construction across a road or highway.

CEC staff decided not to assert any licensing jurisdiction over the rail spur, intending to conduct the environmental review on behalf of the ICC. Kern County apparently had its own claim regarding the right to issue a local railroad permit. However, if the rail spur was appurtenant to the power plant, whatever licensing authority the county had appeared preempted by the CEC. Withdrawal occurred before anything was settled regarding the rail spur.

Withdrawal

While CEC staff labored over the Belridge AFC, Shell was re-evaluating its project based upon a projected long-term drop in the price of oil. If oil became abundant and prices fell, the massive 800 MW, 1.5 billion dollar Belridge Field Cogeneration Project would be uneconomic. Having reached this conclusion, (an accurate prediction, as it turned out), Shell decided to cancel the project and withdraw the AFC. Without any warning, Shell made the withdrawal announcement on September 9, 1983. A few years later, Shell returned to the Energy Commission with a much smaller TEOR cogeneration project already constructed at the same site, Shell Western Belridge (SWEPI), Docket No. 86-SPPE-2.