May 25, 1988 Commission Decision Granting Certification

Project Manager: Gary Heath

Staff Counsel: David Mundstock

Hearing Officer: Susan Gefter

Presiding Member: Commissioner Doug Noteware

Procedural Background

On October 15, 1985, Luz submitted five site certification applications to San Bernardino County for Units III, IV, V, VI and VII of its Solar Electric Generating Systems (SEGS). Each SEGS unit at the Kramer Junction site had a 30 MW capacity for a five-unit total of 150 MW. The county granted all five applications on December 3, 1985, under a set of mitigated negative declarations.

Luz immediately began construction of SEGS Units III and IV, with the other contiguous units to follow under a phased schedule. After Units III and IV were completed, the project received national and state energy awards in 1986 as the world’s largest solar thermal facility. The awards brought Luz CEC congratulations and an intensive jurisdictional investigation.

CEC staff determined that SEGS Units III-VII were "an integrated whole", a 150 MW project rather than five separate 30 MW facilities. (Staff Counsel Ernesto Perez memo dated August 27, 1986.) Therefore, the Energy Commission had exclusive licensing authority over Units III-VII and San Bernardino County’s approval of the projects was invalid. CEC staff filed a petition to assert jurisdiction over the project on October 22, 1986, asking that Luz file an AFC and that all construction and operations be halted until Commission certification could be granted in accordance with the Warren-Alquist Act. (Docket No. 86-C&I-3.)

Luz maintained that each of the five projects was a 30 MW facility over which the CEC had no jurisdiction. Each SEGS Unit was owned by a separate limited partnership, had individual recognition by FERC as a QF (qualifying facility), and its own contract to sell power to Southern California Edison (SCE). Luz also indicated that it had to maintain its construction schedule for Units V and VI in order to meet solar tax credit requirements.

At the October 29, 1986 Business Meeting, the matter was heard, leading to a compromise settlement, the Resolution Providing Direction to Staff. Luz agreed not to challenge CEC jurisdiction and to promptly file an AFC covering Units III-VII. The Commission exercised its discretion to allow construction and operation of Units III-VI to proceed while the AFC was under review in an expedited proceeding. Thus, of the five SEGS units, only construction of Unit VII would be halted by the CEC’s assertion of jurisdiction over the entire project.

AFC Filing and Project Description

Luz filed the AFC for SEGS III-VII on January 6, 1987, meeting the deadline set by the Commission. The AFC was accepted as data adequate on March 18, 1987.

The project was located on a 1,000 acre site in the Mojave Desert near Kramer Junction, 30 miles west of Barstow and 130 miles northeast of Los Angeles. The solar fields contained rows of mirrors that concentrated the sun’s energy onto a system of pipes circulating a heat transfer fluid. The heat transfer fluid was used to produce steam which powered a conventional turbine to generate electricity. The project also utilized natural gas fired boilers for electricity production. Water was supplied from the Antelope Valley-East Kern Water Agency by an underground pipeline.

Major Issues

Waste Management

With respect to Units III and IV, which were already operating when the Commission accepted the AFC, the heat transfer fluid had leaked out of the pipes throughout the facilities due to poor construction. Dirt contaminated by the heat transfer fluid had been piled up awaiting disposal. However, disposal had not occurred due to a continuing dispute between Luz and San Bernardino County Environmental Health Services as to whether the heat transfer fluid residue constituted a non-hazardous, hazardous, or extremely hazardous material.

Through data requests, CEC staff had Luz perform the appropriate test for determining toxicity. The test exposed fish to water containing soil contaminated by heat transfer fluid. The fish died, resulting in a classification of the contaminated soil as "hazardous". This broke the stalemate, allowing for appropriate disposal in accordance with the procedures for hazardous wastes that posed a risk to public and worker health. Under Waste Management Conditions of Certification 8-14 (pages 91-93 of the Compliance Plan) in the Commission Decision, Luz was required to clean up all past spills and discharge sites and prepare a plan for preventing, reporting, and handling future spills.

Reducing heat transfer leaks and spills would be an ongoing challenge for Luz as the company sought to improve its technology.

Biology

The construction of Luz SEGS Units III-VII on pristine desert land had been sanctioned by San Bernardino County with only minimal provisions for mitigating the impacts to the desert tortoise (protected as a state and federal candidate for threatened or endangered species listing), whose habitat was shared by the Mojave ground squirrel (protected as a state threatened species and a candidate for federal listing).

CEC staff, consulting with the California Department of Fish and Game under the state Endangered Species Act, and also with federal agencies plus the Friends of the Desert Tortoise, concluded that the previous mitigation (up to $40,000 for tortoise habitat purchases) had been totally inadequate. Fish and Game insisted upon full mitigation for the entire project regardless of all prior agreements or understandings. Fish and Game rejected as insufficient a new CEC staff/Luz settlement which increased the amount of mitigation being offered by Luz to $1,600,000.

CEC staff then encouraged direct negotiations between Fish and Game and Luz to arrive at a mitigation plan that Fish and Game believed would avoid jeopardy to the existence or habitat of the desert tortoise and the Mojave ground squirrel. These negotiations led to a Habitat Mitigation and Acquisition Agreement, dated May 23, 1988, in which Luz agreed to provide complete off-site mitigation for its habitat damage at a ratio of five to one. Thus, for the 1,000 acres disturbed by Luz SEGS III-VII, Luz would convey 5,000 acres of mutually agreed upon land to Fish and Game as mitigation, together with an endowment of $200,000 for maintenance. Up to three years was allowed for acquisition of the land so that a careful process could acquire the best available tortoise and ground squirrel habitat.

This agreement was included in the final decision as part of Biology Condition of Certification 1 (Page 39 of the Compliance Plan in the CEC Decision) and became the basis for biology mitigation in subsequent Luz proceedings.

Air Quality

Although the solar thermal aspects of Luz did not pose any air quality problems under normal operation, the natural gas-fired boilers did. FERC regulations for QFs allowed Luz to burn natural gas for up to 25% of its energy production, while still being considered a solar facility. When solar power was not available, Luz functioned as a natural gas plant to maximize income in accordance with SCE’s QF payment schedules.

The San Bernardino County Air Pollution Control District interpreted its local rules so as to permit the SEGS Units without requiring any emissions offsets. As a new facility, Luz had no emissions of its own which could be reduced. The District believed third-party offsets did not exist and it had never required them of applicants. The District had allowed NOx emissions for Units III-V at 80 ppm, which was Best Available Control Technology (BACT) under the District’s interpretation of its rules.

CEC staff disagreed with the District, believing that emissions offsets should always be required to avoid a significant adverse environmental impact when new pollution is being added to a non-attainment area. The District was designated a federal non-attainment area for ozone, for which NOx is a precursor. CEC staff also disagreed with the District’s BACT determination, believing that BACT should have been set at no higher than 50 ppm for NOx, in accordance with accepted practice throughout the state.

CEC staff wished to have Luz purchase offsets in order to mitigate the impacts from its new emissions. Both Luz and the District refused to consider offsets, claiming that (a) they were unavailable, and (b) staff’s pursuit of the subject was precluded by the Commission’s October 29, 1986 Resolution Providing Direction to Staff, in which the Commission promised that it would not "in any way attempt to interfere with the construction or operation of Luz SEGS Units III, IV, V, and VI." Under the Committee schedule for the proceeding, staff had no time to identify whether any third-party offsets were actually available.

Given the unique circumstances of this case, staff decided to abandon efforts to obtain offsets for SEGS Units III-VII. Staff concentrated instead upon reducing emissions from Units VI and VII. CEC staff and Luz agreed that that Luz would install low NOx burners in Units VI and VII with an enforceable NOx limit of 40 ppm (Air Quality Condition of Certification 1-23, pages 13-14 of the Compliance Plan in the CEC Decision). This CEC staff/Luz stipulation to reduce NOx emissions was intended to supersede the District’s BACT determination, which remained unchanged at 80 ppm for NOx. Although CEC staff declined to adjudicate the lack of emissions offsets in the SEGS III-VII case, staff was committed to pursuing offsets in all future Luz proceedings, which were anticipated to be more normal AFCs.

Worker Safety

Upon visiting the SEGS sites, staff noticed that the steam turbine generators were enclosed in tight-fitting protective enclosures. In order to access certain instruments and controls, plant workers were required to enter a door, then squeeze between the turbine and enclosure to reach the apparatus. This made escape in the event of malfunction extremely tenuous. To make matters much worse, steam relief valves vented directly into the enclosures. This created the likelihood of scalding should a worker be inside the enclosure when a steam relief valve opened.

At staff insistence, Luz added doors to the enclosures that reduced the likelihood that workers would be trapped inside, and relocated the steam relief valve exhaust piping to a point outside the enclosures.

Visual Resources

When Luz constructed Units III-V, it painted major structures, such as heaters and water tanks, in a bright white color. This maximized the project’s visual impacts. CEC staff determined that Luz SEGS units should instead minimize color contrast with the natural desert setting. Luz agreed to Visual Resources Condition of Certification 1, requiring applicant to develop a color plan under which the paint chosen for Units VI and VII (and Units III-V when re-painted) would blend with the surrounding landscape. (Page 191 of the CEC Decision.)

Demand Conformance

Need for Luz SEGS III-VII was evaluated under the 1986 Electricity Report (ER 6). ER 6 provided for a physical and an economic need test. CEC staff concluded that (a) Luz failed the physical need test because its power purchase agreement with SCE did not provide for dispatchability and (b) Luz failed the economic need test because the capacity payments it would receive under a Standard Offer #4 contract with Edison increased costs to ratepayers.

For facilities which failed the standard need tests, ER 6 provided a "balancing test", under which an applicant could make a showing that a powerplant’s benefits outweighed its detriments. If the Commission agreed that the project was in the public interest, it could find the facility to be needed.

CEC staff and Luz entered into a March 16, 1988 stipulation under which Luz agreed not to challenge staff’s conclusions regarding SEGS failing the physical and economic need tests and to instead make its entire case for an affirmative need finding under the balancing test.

CEC staff testimony on the balancing test recognized the fact that Luz’s existing expenditure of $350 million on constructing the SEGS III-VII project as a real and productive economic resource was the single most important argument favoring certification. The Final Staff Assessment made no comment regarding whether the $350 million expenditure was in the public interest and staff did not otherwise take a position on Luz’s balancing test submittal. (Pages 1-2, FSA Demand Conformance section dated March 21, 1988.

The Committee and Commission agreed with Luz that the societal benefits of the unique project outweighed its burdens so that SEGS III-VII passed the balancing test. Pages 25-34 of the Commission Decision referred to the following major factors establishing overriding circumstances in favor of Luz:

* the minimal level by which Luz failed the physical need test;

* the substantial costs already incurred by Luz, partially in reliance upon the Commission’s own willingness to allow continued construction;

* Luz’s contribution to the development of solar energy, a preferred resource, for which the project has received federal and state awards;

* The potential for solar energy projects such as SEGS III-VII to reduce dependence on fossil fuels and encourage resource diversity; and

* Luz’s efforts to mitigate its impacts upon endangered species by the purchase of suitable replacement habitat.

Commission Decision

The Commission Decision granting the Luz SEGS Units III-VII AFC was issued on May 25, 1988. The Decision sought to place the case in the proper context by stating on page 6 that:

Aftermath 

Luz completed construction of all units at the Kramer Junction facility. Luz would seek out more disturbed land, rather than pristine desert, for its next project site. (See Harper Lake, Luz 8, Luz 9-10, Luz 11-12). Luz units licensed by the Energy Commission continued to operate under ownership of the limited partners following the 1991 bankruptcy of Luz Engineering Corporation, a bankruptcy that included the other Luz management/financial entities and put Luz out of business.

In bankruptcy court, the Energy Commission and the Attorney General's Office struggled for years to obtain the biology land mitigation that Luz had agreed to in this case. Since title had not been transferred at the time of bankruptcy, the land fell under court jurisdiction. There was the danger that the bankruptcy trustee would sell the land to raise funds for paying Luz creditors. A decade later, it appears the 5,000 acres will be preserved for their original mitigation purpose.