August 6, 1979 Decision Approving the NOI

AFC Contingency Certification Denied on April 20, 1983

AFC Staff Counsel: Lisa Trankley

Presiding Member: Commissioner Karen Edson

Contingency Certification

In the 1970s, the Energy Commission was severely criticized for holding up approval of large utility powerplants. The CEC’s early forecasts, showing a reduced need for electricity, were controversial. There was also uncertainty whether utility projects outside CEC jurisdiction, such as the 5,000 MW nuclear projects (Diablo Canyon and San Onofre), and out-of-state coal plants (Harry Allen-Warner Valley), would ever be completed. The utilities and their political allies were raising fears that California might run out of electricity.

To be on the safe side, the Energy Commission’s 1979 Biennial Report (BR) authorized consideration of facilities on a contingency basis, to be constructed only if other plants failed to come on line as expected. Page 49 of the 1979 BR specifically provided for contingency certification of "approximately 2,000 megawatts of new combustion turbine peaking facilities."

AFC Filing

Southern California Edison (SCE) had the very project which the 1979 BR invited to be filed under contingency certification. The Lucerne Valley NOI had recently been approved, with a condition that the AFC include the option of a combustion turbine peakload facility.

Thus, on June 11, 1980, SCE accepted the Energy Commission’s invitation and filed an AFC for Lucerne Valley as a 1,190 MW oil-fired, contingency peakload facility. The proposed project was to be located in San Bernardino County.

What is the Contingency?

Having invited the filing, the Energy Commission had no real idea what to do with an AFC for an unneeded, "contingency" powerplant. The precise nature of the "contingency" in question had not been spelled out.

The Commission granted SCE’s request for a suspension of the Lucerne Valley AFC in November 1980. Edison wished, among other things, to seek a DOE exemption for Lucerne Valley from the Power Plant and Industrial Fuel Use Act of 1978 (PIFUA), which restricted oil-burning.

When the Lucerne Valley AFC came back in October 1981, it had the PIFUA exemption, and it substituted a new 100 MW solar project for two of the facility’s originally proposed combustion turbines. (Solar 100 was later approved as a separate AFC, Docket No. 81-AFC-4, but the project was never built.) However, the nature of Lucerne Valley’s contingency was still unclear.

The Commission moved quickly to establish Standards and Procedures for a Determination of Contingency Certification. These were adopted on April 7, 1982. They amounted to a unique need test that would be applied only to the Lucerne Valley AFC, taking into account the current forecast for the Edison service area. For Lucerne Valley to be found "needed", SCE would have to identify the specific supply related contingency it had in mind, and establish that Lucerne Valley was a reasonable means to meet that contingency. Consideration would also be given to other supply options, such as purchase of out of state power.

Applying the Contingency Standards to Lucerne Valley

One of the CEC standards limited the size of a contingency facility, forcing SCE to reduce Lucerne Valley down to 746 MW, much less than the 1,190 MW originally filed.

However, the standards imposed a requirement on SCE which the utility was unable to meet: identification of the actual contingency which would trigger a necessity to construct Lucerne Valley.

By October 1982, when evidentiary hearings were held in this case, the supply uncertainties of 1979 had vanished. Edison’s nuclear projects (San Onofre in California, 1,760 MW, and Palo Verde in Arizona 579 MW) were now very close to being fully licensed, constructed, and coming on line. CEC staff simply asserted that there was no need at all for Lucerne Valley. (Pages 11-14 of the CEC Decision.)

In defense of its AFC, the most likely contingency SCE could offer was the possibility that the nuclear plants would have abnormally high forced outage rates. But the Committee and Commission concluded that even this scenario was not enough to trigger a need for Lucerne Valley, given the many other supply options, especially power purchase agreements, available to Edison. (Pages 32-34 and 45-47 of the CEC Decision.)

Furthermore, the Committee determined that the Lucerne Valley project was not a reasonable means to meet the contingencies identified by SCE. As an oil burner, Lucerne Valley violated the Commission’s preferred fuel policies, and it was also too costly for Edison’s ratepayers. (Pages 47-50 of the CEC Decision.)

Thus, the Committee concluded that the prerequisite affirmative findings for contingency certification cannot be made for Lucerne Valley, and the AFC should be denied. The Committee also referred to the recently adopted Fourth Biennial Report and its declaration of CEC policy that there is no longer any need for contingency applications, none of which would be accepted in the future. (Pages 1-5 of the CEC Decision.)

Commission Action

On April 20, 1983, the Energy Commission unanimously adopted the Committee recommendations and denied the Lucerne Valley Application for Certification. This was a unique result on two separate grounds: actual Energy Commission denial of a project (rather than face-saving withdrawal by the applicant); and the demise of an AFC based directly upon lack of need.

Technically, this was a denial without prejudice, allowing SCE to re-file Lucerne Valley at a future date when it might be needed. Instead, faced with a growing surplus of capacity, SCE ceased building any more powerplants, filing no new AFCs with the Energy Commission. Unregulated SCE subsidiaries, such as Mission Energy, did share ownership in several cogeneration project AFCs and SPPEs filed as qualifying facilities.

After the demise of Lucerne Valley, contingency certification was never heard of again.