The Metcalf Energy Center, Docket No. 99-AFC-3 (Metcalf)

Certification granted on September 24, 2001

Project Manager: Paul Richins

Staff Counsel: Kerry Willis, Arlene Ichien, Dick Ratliff

Hearing Officer: Stan Valkosky

Presiding Member: Commissioner Robert Laurie

Associate Member: Chairman William Keese

Synopsis

Metcalf was the most controversial siting case of the merchant plant era. It led to only the second CEC override of a local government in Energy Commission history. (The first override had been Geysers 16, two decades earlier.) Metcalf amounted to a test of strength between powerful, stubborn forces, to determine which side would crack first. There were some very real issues, especially in the areas of land use and alternatives. However, I prefer to view Metcalf as an impressionist power plant theatrical production, either a tragedy or a comedy depending upon one's point of view. Thus, the program should begin by introducing the major players and their roles:

Applicant: Calpine Corporation

On its home ground in the City of San Jose, Calpine was absolutely convinced that it's site for this 600 MW clean and modern powerplant was an ideal location. Calpine believed the San Jose City Council would reach the same conclusion and adopt the necessary land use modifications that were required for licensing. Scattered local opponents had been overcome by Calpine in earlier cases, such as Sutter and Delta, so the residents were initially not considered to be a serious threat. When resistance to the powerplant escalated and became a major political force, Calpine dug in for a long struggle, refusing to compromise by moving to an alternative site.

Opposition: Local Residents and the Future of the Coyote Valley

Calpine's site in the pristine northern Coyote Valley was close to the Santa Teresa residential neighborhood. While the site itself was agricultural, the proposed development of a powerplant in Coyote Valley struck a raw nerve with many local residents whose ideas for the future of Coyote Valley did not include heavy industrial use. Calpine was attempting to significantly alter San Jose's established land use plans for the area. The neighbors also had health concerns about pollution from the facility. The residents organized against the powerplant politically, showed up in large numbers to oppose it at Energy Commission hearings and workshops, and many of them spent countless hours arguing against Metcalf as intervenors, both groups and individuals.

The Metcalf opponents were better educated, highly organized, and much more sophisticated in their skill at municipal politics compared to the typical people who had tried to stop prior Applications for Certification. And the residents were able to win over allies, including the Mayor of Morgan Hill and the powerful computer company Cisco Systems. (Cisco had its own facility in a more developed portion of the area, which it planned to expand. Cisco did not want its office complex to have a 600 MW powerplant for a neighbor.) Most importantly San Jose Mayor Ron Gonzales and the San Jose City Council would later cast their votes against Metcalf by refusing to grant Calpine's request for land use changes. (Keeping these allies as the pressure mounted would be a different story.)

Local Government: The San Jose City Council

It would be fair to say that the San Jose City Council was caught in the middle between Calpine and the council's own Santa Teresa neighborhood constituents. The Council initially gave no hint of its position on the project, making no promises, and refusing whatever offers Calpine may have made to try and win them over in the early phases of the case.

When the City Council finally voted in November 2000, they unanimously followed the lead of Mayor Ron Gonzales and rejected the land use designations Calpine needed for Metcalf. This solidarity with the Santa Teresa residents failed to last, as pressure mounted on the City Council. Politically and legally besieged, both Mayor Gonzales and the San Jose City Council ultimately reversed themselves when they believed that Calpine/Metcalf had become an irresistible force.

The Media and the Energy Crisis

Due to an accident of timing, California's electricity crisis, the shortages of 2000-2001, highlighted by rolling blackouts, occurred while the Metcalf battle was at its peak, just after the San Jose City Council had voted down the powerplant. And here was Metcalf, in the middle of Silicon Valley, where the dot.com economy consumed an ever-growing quantity of electricity. It appeared the San Jose community wanted to consume electricity while refusing to generate any.

State and national media coverage escalated the Metcalf conflict, which was entirely local, into a symbolic icon of epic proportions. If you watched television, it often appeared that Metcalf's fate was tied to California's future, and that the result in Metcalf would determine whether the State of California had the political will to build new powerplants that were needed to solve its electricity crisis.

In my opinion, such media coverage of Metcalf symbolism was nonsense. I base my view upon the following facts: (1) the Energy Commission was already licensing virtually every powerplant it possibly could (2) other appropriate steps to increase conservation, reduce both electricity demand and prices were succeeding, and (3) even if Calpine prevailed and licensed Metcalf, the energy crisis was nearly certain to be over before Metcalf ever came on-line, and (4) reasonable alternative sites to Metcalf were worthy of serious consideration.

The Politicians

Responding to the media coverage's fixation with Metcalf, (perhaps with some lobbying help from Calpine, whose California campaign contributions exceeded those of Enron in 2000 according to the 1/15/2002 San Francisco Chronicle), this powerplant generated more political support than any other AFC within my memory. The San Jose City Council's vote against the project resulted in the Council becoming completely isolated politically. San Jose area local legislators announced support for Metcalf and criticized the City Council's stance. The leaders of the California Legislature from both parties sent the Energy Commission a letter on January 30, 2001 calling for immediate action to override the San Jose City Council and expedite the licensing of Metcalf. The California State Assembly unanimously passed a resolution on February 9, 2001 urging the Energy Commission "to move swiftly to license the Metcalf Energy Center and permit is construction". Finally, on April 18, 2001, California Governor Gray Davis announced his personal support for licensing Metcalf so the state could build its way out of the energy crisis.

The pro-Metcalf political pressure became so overwhelming that both Commissioner Laurie (Presiding Member), and Chairman Keese (Associate Member), who comprised the Energy Commission Committee in charge of Metcalf, repeatedly emphasized that their recommendations would be based upon the evidence presented on the record, not the politics of Metcalf. Commissioner Laurie made an extraordinary individual statement on this subject in his forward to the Presiding Member's Proposed Decision.

Metcalf Supporters

Another unusual feature of this case was the diverse array or organizations that endorsed the Metcalf Project as an environmentally clean and modern source of needed electricity. Metcalf backers included the State Building and Construction Trades Council (it would be a union project because of Calpine's earlier agreement with CURE), the American Lung Association, the Loma Prieta Chapter of the Sierra Club, the Center for Energy Efficiency and Renewable Technologies, The Utility Reform Network (TURN), and, most importantly, the California Independent System Operator (ISO). The Cal ISO was responsible for making sure the state's electric grid operated properly with maximum reliability. The ISO felt Metcalf would provide 600 MW exactly where it was badly needed, right in Silicon Valley, the place with an insatiable appetite for electricity. The ISO's position would have a significant influence upon CEC staff and ultimately the Committee and Commission.

CEC Staff

The Energy Commission staff was essentially divided over Metcalf. A virtual internal civil war broke out between certain staff members who felt Metcalf's environmental flaws in areas such as land use, visual resources, and water supply required consideration of alternative sites, and management, which believed that over-zealous staff were trying to obstruct a well-designed and necessary project. At all times, there were other members of the technical staff, especially, the transmission system engineers, who believed Metcalf should be licensed. Management, allied with the legal office, ultimately used its authority to define the CEC staff position, which evolved, becoming increasingly pro-Metcalf as the case reached its final stages. CEC staff finally advocated the land use override of the San Jose City Council in order to certify Metcalf. A number of staff members whose views were modified or disregarded by their management, remained displeased with the manner in which the case had been conducted.

The Committee

I believe that Metcalf was not really a difficult case for Presiding Commissioner Robert Laurie and Chairman William Keese, the Committee in charge of this proceeding. Tedious and unpleasant, perhaps, but not particularly challenging.

The two Commissioners listened to the evidence presented during weeks of hearings and concluded that Metcalf was a beneficial project for the San Jose region and California as a whole. Their decision found that the project's environmental impacts could be mitigated, which meant that the intervenor opponents had not established any legal basis for rejecting the powerplant. Metcalf was thus hard for the Committee to distinguish from the many other facilities already licensed during the merchant plant era.

As for the San Jose City Council's earlier vote against Metcalf, triggering the land use override process, this posed little problem for the Committee. They believed an override was legally justified. The issue no longer really mattered when a final CEC Decision had to be drafted. Fearing an embarrassing Energy Commission override, and unwilling to resist pro-Metcalf political pressure, the San Jose City Council had already capitulated to Calpine and reached an agreement to support the project before the override was adopted. The City Council's reversal essentially ended the case. Thus, the land use override remained casual and automatic, taking up only the last nine pages of a 470 page Energy Commission Decision.

Metcalf, nominally a 12-month AFC, received its license after 27 months.

Project Summary

AFC Filing, Data Adequacy, and Project Description.

Calpine, with co-applicant Bechtel Enterprises, filed the Metcalf AFC on April 30, 1999. The Commission determined Metcalf to be data adequate on June 23, 1999.

The 20-acre project site for this nominal 600 MW natural gas-fired, combined cycle merchant plant was partly in the southernmost portion of the City of San Jose, with approximately two-thirds of the site in Santa Clara County. The City of San Jose was expected (and requested by Calpine) to annex the Santa Clara County portion, so that San Jose land use law would apply to the entire project.

The nearest neighbors were approximately one-half mile away from the proposed site. They lived to the north, in the City of San Jose.

The project's water supply involved the construction of a new 10.2 mile pipeline that would require cooperation from the City of San Jose to utilize city streets. The San Jose Municipal Water Division was also a likely source of the recycled water to be used for cooling purposes by Metcalf.

The land use situation was highly complex, since the Metcalf project essentially proposed to extend the southernmost part of urbanized San Jose into an area that was classified and used as farmland. (The conversion of prime farmland to industrial use could be a significant adverse impact to agriculture, but the Committee and Commission determined that such conversion was both inevitable and not a significant adverse environmental impact.)

However, San Jose's Zoning Code, Zoning Ordinance, General Plan, and the regional North Coyote Master Development Plan all either designated the project site as agricultural and/or prohibited heavy industrial use such as a powerplant. These multiple land use non-conformities required Calpine to seek numerous amendments involving rezoning and other re-classifications from the City of San Jose, in addition to its annexation request. The case would hinge upon Calpine's ability to solve its land use non-conformity problems.

Issues.

Land Use - the San Jose City Council - Override.

Public Resources Code 25525 prohibits the Energy Commission from certifying any powerplant that fails to conform with applicable state or local laws, such as the San Jose land use codes, plans, and ordinances, unless the Commission makes a specific set of findings, including that the facility "is required for public convenience and necessity".

This "override" authority, in which the Energy Commission uses state power to reverse a local government, had only been used to license a PG&E transmission line in the Geysers 16 case two decades earlier. Override was an extreme remedy, never seriously considered in any proceeding other than Geysers 16 and Metcalf.

The Metcalf land use issue had to be played out in two stages. First, Calpine would attempt to persuade the San Jose City Council to grant its requests for amendments that would bring the powerplant into compliance with local laws. This would be a battle for the hearts and minds of the San Jose City Councilmembers were caught between Calpine and its allies vs. the neighbors and their allies. The Energy Commission would not officially support either side, concentrating instead on encouraging the City Council to make a decision, any decision.

If Calpine achieved land use conformity, the problem would be solved. If the San Jose City Council rejected Calpine's requests, the Energy Commission would then have to decide whether or not to override the San Jose City Council in order to license Metcalf.

Neither the San Jose Planning Commission nor the City Council were in any hurry to vote on Metcalf. The city insisted on having the Final Staff Assessment published (equivalent to an Environmental Impact Report) before it would take any action on Calpine's land use requests.

After countless workshops in San Jose, the Preliminary Staff Assessment (PSA) was finally issued on May 15, 2000. Besides the obvious land use non-conformities, CEC staff identified potentially significant adverse environmental impacts from Metcalf in the areas of water resources, visual resources, conversion of prime farmland to non-agricultural use, and possibly biology. The PSA stated on page 5 of the Executive Summary that "Several alternatives are environmentally preferable to the proposed project." These included a smaller facility and a trio of alternative sites developed by staff. The PSA essentially declined to recommend in favor of licensing Calpine's Metcalf facility.

A few rolling blackouts and the start of an energy crisis later, the Final Staff Assessment (FSA) was issued on October 10, 2000. It relied heavily upon transmission system reliability benefits from Metcalf as described by the Independent System Operator (ISO). To CEC staff management, the need for electricity in the San Jose area was now the deciding factor, not the problems identified in the PSA. The project had also been improved by new applicant proposals in several areas such as biology. As CEC staff reversed itself, the FSA recommended approval of the Metcalf Application for Certification on page 8 of the Executive Summary.

With the FSA in hand, the San Jose Planning Commission, voting on November 15, 2000, promptly recommended to the City Council that Calpine's General Plan amendments and other zoning changes be adopted.

Things seemed to be going Calpine's way. However, the local opponents had been concentrating on lobbying their district City Councilmember, other Councilmembers, and the Mayor to oppose Metcalf. These efforts would not be fully reflected until the City Council voted.

San Jose Mayor Ron Gonzales had already publicly announced his opposition to Metcalf. On November 28, 2000, in a show of solidarity with the local opponents and Mayor Gonzales, the San Jose City Council voted unanimously to reject the Planning Commission recommendations, denying Calpine's applications for a General Plan amendment and other zoning changes. The Council asserted that Metcalf was incompatible with the type of use envisioned for the North Coyote Valley.

The land use non-conformities thus remained. Metcalf could not be certified unless the Energy Commission went forward with an override. However, there was now an energy crisis. The political pressure described above would mount until the San Jose City Council reversed itself. Meanwhile, the Energy Commission Committee moved the case forward.

Evidentiary Hearings

The Committee held Evidentiary Hearings in San Jose during 15 days in the period of January through March 2001. The parties (primarily CEC staff and Calpine) presented witnesses; intervenors conducted cross-examination; and public comment was received. CEC Staff was somewhat embarrassed when a combination of intervenor cross-examination and Public Records Act requests revealed the internal disagreements between technical staff and management, primarily over alternative sites. Management's position prevailed as "the Staff position", to the dismay of intervenor opponents. The Committee and Commission would later declare that they did everything to insulate themselves from "acrimonious allegations over the propriety of conduct attributed to various parties" including "this oftentimes rancorous flurry of accusation and innuendo ". (Page 1 of the Commission Decision.)

In my opinion, the hearings generated little that was new in terms of an evidentiary record. Project opponents had concentrated their efforts upon defeating Calpine at the San Jose City Council. Community intervenors were not prepared with legal representation to offer the kind of testimony on technical issues that could threaten Metcalf in the Energy Commission's quasi-judicial forum of administrative law. The City of San Jose maintained a relatively low profile. The Committee concentrated on making certain it had a complete record upon which it could legally rely in making a certification decision, including an override.

The Presiding Member's Proposed Decision

The Committee issued its Presiding Member's Proposed Decision (PMPD) on June 18, 2001. The PMPD recommended that Metcalf be licensed and it included an override of the San Jose City Council's land use provisions.

The PMPD contained an unusual personal forward by Commissioner Laurie, the Presiding Member, which was declared to not be part of the Proposed Decision itself. In his statement, referring to both Governor Gray Davis and the California Legislature, Commissioner Laurie warned about "the dangers of the politicalization of the Energy Commission licensing process." He declared:

In the instant case, the State's highest official, publicly and purposefully, issued statements calling for a particular outcome to this case. Such statements have raised the issue of bias and prejudice by the Commission. I do, therefore, represent to all parties in this case that my decision is based solely on the record and I have every confidence that my fellow Commissioners will similarly base their decisions solely on the record, as they are individuals of great integrity.

(Commissioner Laurie's forward to the PMPD was not included in the final Commission Decision.)

The PMPD contained the necessary findings for an override under Public Resources Code section 25525 of all the San Jose City Council's land use laws that Metcalf was not in compliance with. The PMPD stated at page 458:

Since [Metcalf] will provide a portion of the electrical energy supply essential to the well-being of the state's citizens and its economy, we conclude that this project is required for "public convenience and necessity" within the meaning of section 25525.

The override section found that Metcalf would not create any significant adverse environmental impacts, while providing lower energy prices to consumers and the major benefit of increased electric system reliability in the area, reducing San Jose's vulnerability to catastrophic outages. The PMPD declared that none of these matters had been seriously disputed. Finally, the Committee rejected any of the proposed alternative sites for failing to have meaningful advantages over the proposed Metcalf site. In ten pages, the Energy Commission's second override of a local government in 25 years was recommended.

The City Council's Reversal

On June 26, 2001, a week after issuance of the Presiding Member's Proposed Decision, the San Jose City Council, again following the lead of Mayor Gonzales, reversed itself. In the face of the impending override and political pressure, the Council voted 10-1 to support the Metcalf Energy Center. Only the district Councilmember representing the Santa Teresa neighborhood dissented.

The local residents that opposed Metcalf denounced this betrayal by their elected officials. However the battle was over.

The San Jose City Council would later reach a formal agreement with Calpine to help fund a pipeline to provide Metcalf's water supply, solving the only remaining issue of importance. Calpine and the Council also agreed that the powerplant site would be annexed by the City of San Jose.

However, neither the City Council nor Calpine showed any interest in having the Council reverse its prior decisions rejecting Calpine's attempt to achieve land use conformity. It appeared that the Council and Calpine both desired the Energy Commission override to proceed, since the override would be faster than a new series of City Council votes on specific land use amendments.

Metcalf thus added a final twist: the CEC override of a local government which now declared itself in support of the project it had previously rejected. Here was a distinction from Geysers 16, in which Sonoma County never changed its position and (unsuccessfully) fought the CEC's transmission line override in the California Supreme Court for years.

Adoption

On September 24, 2001, the California Energy Commission unanimously certified the Metcalf Energy Center, adopting the second override in Commission history.

Legal Challenges

The Energy Commission's judicial review statute, Public Resources Code section 25531, had been amended again by the Legislature in 2001 as part of AB 28X, an emergency measure. The bill restored exclusive review of CEC licensing decisions to the California Supreme Court, eliminating the Courts of Appeal as a possible venue. The Supreme Court can simply decline to hear the case, which appears to be its choice as regards Metcalf, where various requests for review were rejected without comment. More complaints/requests/petitions/writs were filed in various state courts.

The Metcalf opponents are also continuing to pursue Federal options, such as a challenge before EPA's Environmental Appeals Board and other attacks on the validity of Federal air permits obtained by Calpine. The June 22, 2002 Chronicle reported a total of 9 lawsuits against Metcalf, of which 6 had been dismissed and 3 were still pending. In my opinion, it is very unlikely that any court will block construction of Metcalf.

Calpine's current (much delayed) target date for having Metcalf on line is July 2005. The ground-breaking ceremony finally took place on June 21, 2002, nine months after certification. With financial problems resulting from Enron fallout and uncertainties in the California market, Calpine has delayed or canceled a number of powerplants. However, I believe one thing is virtually certain: Calpine will eventually finish the Metcalf Project as a symbol of corporate determination and its will to prevail. The CEC's latest report shows 11% of Metcalf construction has been completed.