February 14, 1990 Commission Decision Granting Certification

Project Manager: Gary Heath

Staff Counsel: David Mundstock

Hearing Officer: Garret Shean

Presiding Member: Commissioner Richard Bilas

AFC Filing and Project Description

Luz’s second AFC at Harper Lake consisted of two 80 MW facilities, Solar Electric Generating Systems (SEGS) Units IX and X. The AFC was filed on January 31, 1989, and accepted by the Commission as data adequate at the March 15, 1989 Business Meeting.

Units IX and X were adjacent to the previously approved Unit VIII (Docket No. 88-AFC-1) at the Harper Lake site, a vacant former alfalfa ranch in the Mojave Desert of San Bernardino County, 135 miles northeast of Los Angeles. A total of five SEGS Units at 80 MW each were planned for Harper Lake, the world’s largest solar facility.

Units IX and X would each occupy 400 acres. The units used solar collectors, 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 for sale to Southern California Edison (SCE). Luz also utilized natural gas-fired heaters for electricity production to supplement solar power for up to 25% of its total energy. Units IX and X relied upon underground aquifers for their water supply.

For NOx control at Units IX and X, Luz and CEC staff were still relying upon the Alzeta Pyrocore burners, which caught fire and burned at Unit VIII on January 10, 1990, a month before certification of Units IX and X. A report on the accident begins at page 547 of the Unit IX and X Decision, containing additional conditions of certification intended to prevent future such occurrences.

Major Issues

Biology

Protected Species (Mitigation)

Once again, the major species of concern were the desert tortoise (protected as a state and federal candidate for threatened or endangered species listing) and the Mojave ground squirrel (protected as a state threatened species and a candidate for federal listing). CEC staff calculated that Units IX and X would cause a long-term tortoise/squirrel habitat loss of 336 acres to be mitigated by acquisition of off-site tortoise/ground squirrel habitat at a ratio of 5 to 1. (Biology Condition of Certification 1, pages 139-141 of the CEC Decision.) This followed the pattern set by the previous two Luz cases and was acceptable to the Department of Fish and Game.

The Marsh

The Unit VIII enhancement plan to restore the north marsh, part of a distinctive wetlands complex near the project site, began to collapse during the Units IX and X case. It was discovered that naturally occurring selenium would be concentrated in the blowdown water to a point where it could pose a danger to wildlife if discharged into the marsh. The recent history of selenium killing birds at the Kesterson National Wildlife Refuge deterred any risk taking at Harper Lake. (Pages 122-125 of the CEC Decision.)

Luz intensively studied methods which would remove or reduce selenium to the point where the blowdown water could service the marshes, hoping that this enhancement strategy could still work for all the SEGS units and guaranty the long-term survival of the marshlands. Mixing well water with the blowdown remained under consideration as one remaining approach for Luz to restore the north marsh. (Biology Condition of Certification 11.k., pages 146-147 of the CEC Decision.) However, the selenium problem was never solved, preventing restoration of the north marsh.

Edwards Air Force Base and the Naval Weapons Center intervened and their Bird Air Strike Hazard (BASH) unit argued that increased bird populations would be a collision threat to military aircraft. BASH preferred no marshes, or at least no expansion of the existing marsh area. (Page 125 of the CEC Decision.)

Selenium plus BASH reduced the once ambitious cooling tower blowdown-marsh restoration effort to little more than a failed experimental concept. The Luz blowdown water ended up in evaporation ponds which themselves had to be monitored for selenium concentrations and bird mortality. (Biology Condition of Certification 11, pages 145-146 of the CEC Decision.) (Many years later, Luz project owners would provide a limited amount of well water to the marsh, a modest effort that replaced the far more substantial enhancement program originally agreed to in the Unit VIII case. The marshlands were not restored, and large portions of the marsh either stayed or went dry.)

However, in 1989 Marshland supporters were more concerned about the immediate threat posed by SEGS Unit XII, still planned for a location infringing upon the south marsh. That site for Unit XII threatened the marsh water supply and bird foraging habitat by displacing the remaining alfalfa farm. Luz was still considering an alternative site for Unit XII, closer to the other units and further from the marsh. Luz’s choice would be revealed when the SEGS Unit XI and XII AFC was filed.

Air Quality

In the Unit VIII case, Luz had offset its new emissions by reducing NOx levels at Kramer Junction. For Units IX and X, Luz had no more offsets of its own. If the new emissions were to be offset (as CEC staff insisted), Luz would have to obtain third-party offsets from an unknown source.

With the San Bernardino County Air District claiming that third party offsets neither existed nor were required, it was difficult for CEC staff to persuade Luz to even conduct a search. But in response to a staff data request, Luz uncovered several possible offset sources. Under continuing staff pressure, Luz began negotiations with Southern California Gas Co. to obtain the right to control NOx emissions at the Newberry Springs natural gas pipeline compressor station.

The engines at Newberry Springs had no emission controls at all. The air district objected to Luz using them as offsets because the district hoped to eventually take credit for emissions reductions at Newberry Springs if EPA ever insisted upon improvements to San Bernardino County’s air quality.

Nevertheless, Luz reached an agreement with Southern California Gas and obtained sufficient NOx offsets from an engine at Newberry Springs for Units IX and X. CEC staff and Luz developed a formula for calculating how reduced baseload emissions at Newberry Springs would offset Luz’s highly variable peak and intermediate emissions at Harper Lake. (Air Quality Conditions of Certification 1-1 to 1-3, pages 67-68 of the CEC Decision.) After a long series of public workshop negotiations, CEC staff and Luz once again stipulated to the Air Quality conditions that limited emissions in spite of air district objections.

Luz did in fact reduce emissions at Newberry Springs and produce a legitimate offset. (Following the Luz bankruptcy in 1991, the Luz Solar Partners (limited partners) who took over the SEGS units did not pay Southern California Gas for the rights to the offsets they were using. So Cal Gas later filed suit for breach of contract, but it appears this complex litigation was settled prior to trial in 1999.)

Water Resources

Intervenor James LaMont, now represented by attorney Thomas Becker, adjudicated the issue of water supply, claiming that the Luz use of groundwater for Units IX and X would damage the already depleted aquifer, threatening Mr. Lamont’s future use of his undeveloped property by denying him adequate water. CEC staff disagreed on the grounds that, compared to the irrigated alfalfa farm that preceded it on the site, Luz would use less groundwater and reduce impact on the aquifer. (Page 159 of the CEC Decision.)

The Committee found that Luz SEGS Units IX and X would not cause a significant adverse impact to the area’s water resources. To reassure Mr. LaMont, the Committee added Water Supply Condition of Certification 5, stating that "Luz shall not operate its facilities in a manner that will prevent Intervenor James LaMont from obtaining adequate groundwater supplies for his property from the Harper Lake aquifer." The Commission would retain jurisdiction to protect LaMont from any future Luz violation of this condition. (Page 161 of the CEC Decision.)

Decommissioning

In response to the concerns raised by Mr. LaMont in the Unit VIII case, CEC staff attempted to strengthen its Unit IX and X decommissioning conditions, expressly calling for Luz to develop contingency plans to secure the site and remove the heat transfer fluid in the event the company went bankrupt. (Luz personnel had mentioned the threat of bankruptcy from the earliest days of the SEGS Units III-VII proceeding.)

At evidentiary hearings, intervenor LaMont challenged the staff conditions as too weak, insisting that Luz provide an up-front decommissioning fund intended to cover all contingencies, including dismantling the facility. The Committee’s Proposed Decision generally sided with LaMont, adding conditions requiring Luz to provide an initial $100,000 deposit, plus, from the tenth year on, $100,000 a year for ten years per unit, totaling a $2,200,000 decommissioning fund. (Pages 549-550 of the Proposed Commission Decision.)

Luz challenged the evidentiary basis for the Committee’s requirements, suggesting that an adequate decommissioning fund would be $75,000 per project, to be funded during the first year of commercial operation. (Pages 7-11 of the February 5, 1990 Luz Comments on Proposed Commission Decision.) The Committee and Commission then adopted the Luz approach, setting the final figure at $100,000 per unit. (Facility Security/Decommissioning Condition of Certification 1, pages 544-545 of the CEC Decision.) (Intervenor LaMont had helped to set in motion a far greater emphasis upon decommissioning at the Energy Commission that would evolve into standardized Conditions of Certification for future siting cases.)

Socioeconomics

By a December 8, 1989 memo, the CEC received copies of a project agreement that Luz and the Pipefitters’ Union had signed. Starting with Unit IX, Luz employees would have to join the appropriate craft union as a condition of employment. District Council 16 ceased active participation in the SEGS IX and X case, and socioeconomics became an uncontested subject.

Demand Conformance

SEGS Units IX and X were the first projects evaluated under the ER 7 Need Tests. As with ER 6, there was a physical test and an economic test. However, the balancing test had been replaced by a series of calculations under the economic test in which a project’s benefits could be quantified to see if they exceeded its detriments.

Both CEC staff and Luz agreed that Units IX and X passed the physical need test. (Pages 9-10 of the CEC Decision.) Staff calculated that Luz failed the economic need test and would cost SCE ratepayers an extra $133.6 million over the project’s life. Under the Luz analysis, this economic test deficit was only $78.8 million. The Committee and Commission chose to accept the Staff figures as a starting point. (Pages 9-11 of the CEC Decision.)

ER 7 allowed Units IX and X to take credit for reducing harmful air emissions from older SCE plants they would displace. Displaced pollutants such as NOx, Sox, PM, and ROG were assigned different monetary values depending upon the estimated costs of cleaning up the older powerplants. In this way the air quality benefits from Luz SEGS IX and X were calculated by CEC staff in the range of $67 million to $127 million, depending upon which assumptions were used. By utilizing the staff’s highest benefit estimate, and then slightly reducing a staff deficit calculation, the Committee and Commission were able to conclude that Luz SEGS Units IX and X provided a net benefit of $4.1 million and passed the economic need test. (Pages 11-13 of the CEC Decision.)

Commission Decision

The Commission considered certification of Luz SEGS Units IX and X at the February 14, 1990 Business Meeting.

Mr. LaMont and his attorney Thomas Becker unsuccessfully objected to certification, raising the two issues of water supply and decommissioning. They asserted that Units IX and X would result in a continued overdraft and decline of the water table and that the proposed decommissioning conditions were inadequate to protect Mr. LaMont’s property interests should Luz be unable to perform its obligations. The Decision was not modified.

The Commission certified Luz SEGS Units IX and X by a 4-1 vote. Commissioner Mussetter filed a March 12, 1990 dissenting opinion, primarily objecting to the manner in which the ER 7 balancing test was used to justify a project which he believed would cost ratepayers over ninety million dollars.

As was its practice, Luz immediately began construction of Unit IX in order to meet various deadlines for solar tax credits. It was completed in record time and began operations in October 1990.

It is not that unusual for an applicant to build "at its own risk" under these circumstances, even though legal challenges to its license are continuing. Unless there is a court order halting construction, the applicant who keeps building in reliance upon CEC certification is violating no law.

Reconsideration

Intervenor James LaMont filed a petition for reconsideration of the Unit IX-X Decision on March 16, 1990, challenging the adequacy of the decommissioning conditions. The Commission heard the petition on April 11, 1990, but took no action. Thirty days having elapsed on April 17, 1990, the petition was deemed denied pursuant to Public Resources Code section 25530. (April 26, 1990 Minute Order signed by Chairman Imbrecht.)

Supreme Court Petition

On May 16, 1990, Mr. LaMont petitioned the California Supreme Court for judicial review of the Commission Decision in accordance with Public Resources Code section 25531. (LaMont v. CEC, No. S015676.) LaMont’s petition raised the issue of whether the Legislature had the Constitutional power to provide for initial review by the Supreme Court of CEC siting case decisions.

The Supreme Court initially granted a writ of review on September 19, 1990. After several pleadings were filed, the Supreme Court reversed itself on July 17, 1991, vacating the writ of review as improvidently issued on the merits. LaMont’s petition for a writ of review was thus denied.

Post-Certification/Bankruptcy

Luz managed to put SEGS Unit IX into production, but it would be the final Luz unit. Soon after construction of Unit X began, Luz filed for bankruptcy and Unit X has never been completed. Units III-IX have continued to operate under the control of Luz’s investors, the limited partners, who stepped in after Luz, the general partner, went bankrupt. (Luz units were even allowed to burn more natural gas in order to increase electricity production during the 2001 supply crisis.)

At the time of bankruptcy, the AFCs for SEGS Units XI and XII were under CEC review, Docket Nos. 89-AFC-2 and 91-AFC-1. These AFC proceedings were terminated by Commission Order dated November 22, 1996.

Commentary

In hindsight, I do not believe the Energy Commission could have responded to the Luz AFCs in a different manner than the methods employed at the time. Luz was always a work in progress, with the potential of eventual improvements, even breakthroughs. It was impossible to predict whether Luz technology represented the future of solar energy, or an evolutionary dead end. The press generally considered vast Luz solar fields to be a marvel of demonstrated renewable energy success. The projects always looked spectacular, especially if you ignored the smell from leaking heat transfer fluid.

Luz committed countless mistakes, such as blowing up Unit VIII, because projects were rushed to completion and operation for fiscal reasons. Luz became the first applicant to pay Energy Commission fines for repeated violations of Conditions of Certification. The fines were small (by statute) and Luz did not contest its guilt. Luz also never hid the fact that it relied upon tax credits, special financing schemes, political lobbying, and luck to avoid the looming threat of bankruptcy. Yet, during the four years I spent as a "Luzer", I never believed it was the Energy Commission's role to drive Luz out of business, given our support for the potential of solar power. The Commission provided Luz with every opportunity to sink or swim. Luz sank. There probably turns out to be no future for large scale, solar thermal electric projects such as those built by Luz.

But if Luz had been better financed and managed, things may have turned out differently. One of the final post-bankruptcy rumors concerned a possible sale of Luz to a respected, giant European company. The sale was supposedly vetoed by the Israeli government, since Luz's parent corporation was based in Israel, and Israel does not allow asset transfers to foreign ownership. I have no idea if there was any truth to this rumor.

I last saw the Luz solar fields in the 1997 futuristic film Gattaca. The filmmakers were clearly looking for a unique visual effect that would suggest a highly technological era. Luz and science fiction were made for each other.