Small Power Plant Exemption Granted April 2, 1986

Hearing Officer: Steve Cohn

Staff Counsel: Caryn Hough, John Chandley

Presiding Member: Chairman Charles Imbrecht

SPPE Filing and Project Description

Chevron filed an Application for a Small Power Plant Exemption (SPPE) on August 30, 1985, with a supplemental filing on October 25, 1985, which was necessary to meet the SPPE data adequacy requirements in effect at the time. October 25, 1985 thus became the official filing date.

El Segundo was a 76 MW cogeneration plant which would produce steam and electricity for use in Chevron’s oil refinery at El Segundo, replacing power which Chevron currently purchased from Southern California Edison (SCE). Approximately 8-9 MW of surplus electricity would be available for sale back to Southern California Edison (SCE). This made El Segundo a self-generator. The fuel would be natural gas, vaporized Liquid Petroleum Gas (LPG), and/or a mixture that could include natural gas, LPG, and refinery gas. The facility would replace an existing boiler with a much more efficient, less polluting plant, controlling NOx emissions with a Selective Catalytic Reduction (SCR) system.

The SPPE Process

SPPE eligibility is limited to plants with a capacity of 50 MW up to 100 MW. SPPEs are governed by Public Resources Code section 25541. The CEC must make two separate findings in order to grant an SPPE - that "No substantial adverse impact on the environment or energy resources will result from the construction or operation of the proposed facility" (Public Resources Code section 25541(a)), and that "Generating capacity will not be added which is substantially in excess of the forecast of electrical energy demands adopted pursuant to subdivision (e) of section 25305)." (Public Resources code section 25541(b)). (The SPPE "need" finding was repealed in 1999 as part of electric industry de-regulation.)

If an exemption is granted, no AFC need be filed, and the applicant can obtain local permits to build the powerplant. An SPPE has historically been an exemption from the Energy Commission’s site certification process.

CEC staff’s environmental analysis for an SPPE is presented in an Initial Study, which the CEC conducts as the CEQA lead agency for the project under Public Resources Code section 25519(c). A facility which qualifies for issuance of a negative declaration is considered to also satisfy the environmental finding for granting an SPPE.

CEC staff found no substantial adverse environmental or energy resource impacts from El Segundo, and issuance of the negative declaration was uncontested.

Demand Conformance for the El Segundo SPPE

The SPPE demand conformance finding was another matter entirely. The Placerita case, Docket No. 84-SPPE-1, established that Commissioners disagreed regarding how to determine need for an SPPE. While El Segundo was under review, this disagreement was widening in Champlin, Docket No. 85-SPPE-7, and in IBM (the first self-generator to file), Docket No. 85-SPPE-2. In El Segundo, the Commissioners would again struggle to conduct the appropriate need evaluation.

Page 7 of the El Segundo decision stated the problem directly: "Unfortunately, there is no specific statutory or regulatory guidance on how to apply the ER 5 need tests to SPPEs." Nor was there any help from ER 5 regarding the appropriate need test for a self-generator.

The IBM Decision of March 5, 1986, with a divided Commission granting an SPPE to that self-generation plant, did set a precedent for the CEC to liberally apply the ER V need tests. Three Commissioners declared that, since IBM did not substantially exceed the standards of ER V’s Unspecified Reserved Need Test, Public Resources Code section 25541(b) was satisfied. (IBM Decision, pages 13-19). That same general approach to demand conformance was used for El Segundo, with a similar result.

The Commission Decision determined at pages 8-9 and 10-11 that El Segundo met Conditions 1, 2a, and 4 of the Unspecified Reserved Need Test. Condition 3 (load matching) was less conclusive. Chevron testified that its plant would "virtually match" SCE’s loads, while CEC staff, treating El Segundo as a baseload facility, found there would not be a match for a small and shrinking percentage of time. This allowed the Commission Decision to conclude at page 10 that El Segundo will "substantially comply" with Condition 3, thus meeting the demand conformance standard for granting a Small Power Plant Exemption: adding generating capacity not substantially in excess of the adopted electricity forecast.

The Commission Decision also emphasized on page 12 that issuance of a Small Power Plant Exemption was a discretionary act on the CEC’s part, not required even if the provisions of Public Resources Code section 25541 are met. Given evidence that El Segundo would produce approximately $6 million in ratepayer savings, improve air quality, and reduce energy use due to its high efficiency, the Commission approved the SPPE.

Adoption

The Energy Commission granted Chevron’s El Segundo Cogeneration Project a Small Power Plant Exemption on April 2, 1986, and the project was constructed under local permits. It began operating in 1987.

Commissioner Gandara filed a Concurring and Dissenting Opinion in which he claimed the Commission was inventing a new standard for review of demand conformance in each SPPE case, resulting in an ever-shifting test which is vague and lacking in legal authority or clarity. He referred to his previous Concurring and Dissenting Opinion in Placerita as a statement of the correct, statutory approach to SPPEs.

As a result of the many disputed SPPEs under ER V, (Placerita, IBM, El Segundo, and Champlin), subsequent Electricity Reports, starting with ER 6, have often included specific language directing that SPPEs be subjected to the identical need test required for AFCs. The Commission also developed a special self-generation need test, beginning with the following language from the 1986 Electricity Report (ER 6)"

"(1) With respect to that portion of the power sold to the utility, the Commission will apply the principles and conditions applicable to QFs.

(2) With respect to that portion of the power produced for internal use, self-generation projects will be presumed needed if the applicant demonstrates that it attempted to negotiate a rate with the utility it would otherwise purchase power from and cannot obtain a rate that in the applicant’s judgment is less than the value of the self-generation project (cost of power from the proposed project less intrinsic value to the self generator). This presumption may be rebutted by "clear and convincing" evidence."

Chevron’s Richmond Cogeneration Facility, Docket No. 86-SPPE-1, would be the first project evaluated under the new self-generation need test.