Small Power Plant Exemption Granted December 18, 1985

Project Manager: Lorraine Van Kekerix

Staff Counsel: David Mundstock

Hearing Officer: Garret Shean

Presiding Member: Commissioner Geoffrey Commons

SPPE Filing and Project Description

Applied Energy Services, Inc. (AES or applicant) originally filed the AES Placerita Cogeneration Project Application for a Small Power Plant Exemption (SPPE) on January 12, 1984. A comprehensive amended application, filed on January 30, 1985, modified the project substantially and became the basis for Commission review. As amended, Placerita was a 101.2 MW (gross) natural gas cogeneration plant which would produce steam for use in the recovery of oil from Tosco’s Placerita oil field in Newhall and 98.9 MW (net) of electricity for sale to Southern California Edison (SCE). The project was located in Placerita Canyon, part of the San Gabriel Mountains in central Los Angeles County, north of metropolitan LA.

The SPPE Process

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" 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)." If an SPPE is granted, an applicant then obtains local permits for its powerplant rather than a CEC license.

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). Traditionally, a facility which qualifies for issuance of a negative declaration is considered to also satisfy the environmental finding for granting an SPPE.

The SPPE demand conformance finding had not previously been a subject of controversy. The Placerita proceeding revealed a disagreement among Commissioners on the standards to be used in making that finding. This became a more significant issue in the Champlin case, Docket No. 85-SPPE-7.

Issues and Delays

Nearly two years occurred from the time of Placerita’s original filing until the SPPE was granted. During much of this period, the project was dormant, under actual or de facto suspension, while AES attempted to solve its problems outside of the Energy Commission’s process. AES faced two major obstacles:

The Neighbors

The Placerita oil field adjoined a significant residential area, represented by the Placerita Canyon Property Owners’ Association. In a February 10, 1984 letter to the Commission, the Property Owners’ Association expressed strong concerns about the issue of smog, asking that Placerita be subjected to a thorough Environmental Impact Report rather than merely issued a negative declaration. AES thus faced a potentially powerful opponent that could threaten the success of its SPPE.

Air Quality Review and Offsets

Placerita was filed without any air emissions offsets. AES believed it might be exempt from any offset requirements under a new California law favoring cogeneration projects. Otherwise, AES intended to obtain offsets during the course of the review process. However, at the time Placerita was filed, the U.S. Environmental Protection Agency (EPA) began insisting that cogeneration projects in the South Coast Air Basin have offsets in accordance with federal law (EPA letter dated January 9, 1984, docketed February 6, 1984.)

Thus, the South Coast Air Quality Management District (SCAQMD), under EPA’s direction, concluded that Placerita must obtain offsets as a precedent to further review of the project. SCAQMD’s February 3, 1984 letter to the CEC found that, as proposed, Placerita would lead to a significant measurable deterioration of air quality, and therefore, the CEC should deny the SPPE application.

Responding to the South Coast Air District, AES requested suspension of the Placerita SPPE in a February 23, 1984 letter. The Committee granted an immediate and indefinite suspension of the proceeding.

Placerita Returns: The Amended Application

Placerita came back on January 30, 1985 with its amended SPPE application. AES now had now purchased offsets as well as claiming benefits from the retirement of Tosco’s existing oil field boilers. Placerita would also employ the state-of-the-art selective catalytic reduction (SCR) process to reduce NOx emissions. However, in spite of several written requests, AES had not paid its fees to the CEC for CEQA review of the project under Title 20, California Code of Regulations, section 2308. On February 22, 1985, the CEC demanded a $42,000 payment before work could begin again. AES paid up and a new review of the SPPE commenced.

CEC staff initiated a series of data requests to try and understand both the project’s impacts and the nature of the changes reflected in the amended SPPE. The applicant continued to make project modifications, lengthening the discovery period. Concurrently, AES, with its new attorney, former Commissioner Gene Varanini, began negotiating with the neighbors, seeking to provide them with tangible project benefits. Meanwhile, the air district conducted its own analysis of the amended project, and the Committee initiated its highly complex demand conformance review process under the ER V Specified Reserved Need Test. Months passed.

The AES/Placerita Canyon Property Owners’ Assoc. Contract

At the July 26, 1985 Informational Hearing, AES announced that it had just signed a contract with the Placerita Canyon Property Owners’ Association. In the contract, AES agreed to a series of mitigation measures for Placerita, creation of a neighborhood advisory committee, and a $500,000 payment to the Association for various area improvements. Although the contract never became a formal part of the SPPE process, there would be no further neighborhood opposition to Placerita.

The Initial Study/Draft Negative Declaration

On November 6, 1985, the CEC staff issued its Initial Study and proposed Negative Declaration for Placerita. Staff found that the mitigation measures in all areas, including air quality, were acceptable, and the proposed facility would not have a significant impact on the environment. The Initial Study included staff’s demand conformance testimony, which determined that Placerita was in conformance with the CEC forecast because it passed the ER V Specified Reserved Need Test, the same test that would be given to an AFC.

Thus, there were no disputed issues remaining between CEC staff and AES. The November 6, 1985 Staff Testimony recommended that the Placerita SPPE be granted.

The Committee and Demand Conformance

Commissioner Geoffrey Commons was the presiding member of the Placerita Committee. He did not accept applicant and CEC staff conclusions in the area of demand conformance which concurred that Placerita was needed. Commissioner Commons unilaterally declared that a series of need related issues should be briefed by the parties (October 29, 1985 Committee Notice and Hearing Order and prior orders.) This included the subject of whether an SPPE could be approved by the Energy Commission with a lesser showing of need than an AFC.

AES responded with a series of lengthy briefs, massive amounts of testimony, and a request for additional time to draft further briefs which were later filed.

CEC staff’s short response declared that none of the Committee questions involved issues of fact or law which have been raised or contested by any party in this proceeding. While staff attempted to answer some of the Committee questions, staff refused to enter into speculation regarding the abstract propositions raised by Commissioner Commons. CEC staff also ignored applicant’s voluminous submissions.

After the Committee made several requests for additional testimony and held special hearings, there was still no dispute over demand conformance between applicant and CEC staff. The Committee finally issued its decision, which recommended granting the SPPE. The decision contained the Committee’s independent analysis of CEC demand conformance policies, the testimony presented, and the nature of the ER V need tests. Under its own evaluation, the Committee did conclude that Placerita passed the ER V Specified Reserved Need Test. (Pages 9-19 of the CEC Decision.)

Adoption and Dissent

The full Commission adopted the Decision granting the Placerita SPPE at the December 18, 1985 Business Meeting. Commissioner Arturo Gandara filed a 14-page Concurring and Dissenting Opinion in which he accused the Committee of demanding "excessive and burdensome need analyses." Commissioner Gandara’s opinion set forth his theory of a simple, "common sense" need test for an SPPE, which he later attempted to implement as Presiding Member in the Champlin proceeding, Docket No. 85-SPPE-7.

Placerita was constructed under local permits, coming on-line in 1988.