(License Renewal, Docket No. 92-AFC-2C)

May 11, 1994 Commission Decision Granting Certification

Project Managers: Darrel Woo, Gary Heath

Staff Counsel: David Mundstock

Hearing Officer: Stan Valkosky

Presiding Member: Chairman Charles Imbrecht

Associate Member: Commissioner Richard Bilas

Background

After SMUD's 913 MW Rancho Seco Nuclear Power Plant was closed by the voters in the June 6, 1989 election, SMUD conducted a competitive bidding and negotiation process with various powerplant developers in order to obtain replacement generation. In November 1991, SEPCO was one of five local projects selected by SMUD for development. SEPCO would be the only member of this group licensed by the Energy Commission, but never constructed.

ER 90 established criteria and guidelines that a municipal utility could utilize in a competitive resource selection process. In a March 12, 1992 submittal, SMUD asked the CEC to make a formal determination that SMUD’s procurement process complied with ER 90, and that the package of five chosen projects were therefore all in conformance with the integrated assessment of need under ER 90.

The Commission made the findings requested by SMUD on May 13, 1992, Docket No. 88-ER-8S, Order No. 92-0513-02. Therefore, the SEPCO project was already deemed needed and demand conformance could not be an issue in the AFC itself.

Description

The SEPCO AFC was submitted on September 3, 1992. It was found data adequate as of May 28, 1993 after SMUD provided fuel supply pipeline data (the SMUDGAS filing, Docket No. 92-AFC-2P, which became a separate proceeding that considered the gas supply pipeline). The SEPCO project consisted of a natural gas fired cogeneration powerplant (baseload capacity - 113 MW; peak capacity 148.5 MW) to be owned by the Sacramento Municipal Utility District Financing Authority (SMUDFA) and an ethanol manufacturing facility to be owned and operated by Sacramento Ethanol Partners (SEP). SEPCO was therefore two entirely separate projects with different owners, united only by a contractual arrangement.

Unique Cogeneration

SEPCO was unique in that it proposed a cogeneration plant without a pre-existing thermal host. The ethanol plant would be that thermal host, to be constructed together with the powerplant. The ethanol facility was essential to the project because a stand-alone powerplant would not have qualified for the cogeneration NOI exemption under the then-existing language of Public Resources Code section 25540.6(a). (The statute has subsequently been amended to allow all natural gas-fired powerplants to qualify for the NOI exemption without any cogeneration requirement.)

Jurisdiction

The CEC only had licensing jurisdiction over the powerplant, while Sacramento County was the permitting agency for the ethanol facility. However, the ethanol plant needed a zoning amendment from Sacramento County in order to be built. That could have led to a separate EIR for the ethanol plant, resulting in delay and duplication. The Energy Commission and Sacramento County entered into a Memorandum of Understanding which provided that the CEC would be the CEQA lead agency on the county's behalf for environmental review of the ethanol plant. The PSA and FSA thus effectively treated SEPCO as a single project even though we had no jurisdiction over the ethanol plant. The Commission documents served as the functional equivalent of an EIR for Sacramento County approval of the ethanol plant re-zone.

Location

SEPCO was to be located on undeveloped grazing land in Rio Linda, a small, unincorporated community. Most of the ethanol plant site was designated as a flood plain. Residential streets were very close to the proposed ethanol facility location. SMUD's powerplant site was on higher ground, further away from residences, adjacent to existing electric substations.

Intervenors

A number of Rio Linda groups and individuals intervened to oppose the project. They participated actively, raising a wide variety of objections to SEPCO as originally proposed. CEC staff held a long series of workshops in Rio Linda to ensure adequate public participation. Staff agreed with some intervenor concerns, such as water supply, leading to project modifications that are discussed below. 

Major Issues

Water Resources

Applicants originally proposed to use groundwater from local wells for the project. Both CEC staff and intervenors considered this to cause a severe adverse environmental impact in an already overdrafted basin. Commission approval would have been unlikely if applicants had continued to insist upon using local groundwater.

The Sacramento River was proposed by applicants as a substitute surface water supply. Applicants stated their intent to purchase the needed water from the Natomas Central Mutual Water Company and amended the project to include a 7.5 mile underground pipeline bringing the water to the site. The Commission decision prohibited use of ground water and required applicants to obtain a signed water supply contract from Natomas.

The SEPCO project included several significant biological resource impacts requiring mitigation. The project would permanently impact more than 44 acres of Swainson's hawk foraging habitat, a state-listed Threatened species. In addition, a variety of vernal pools and associated uplands would be impacted by the construction of access roads, the power plant, and ethanol facility construction. The vernal pools contained vernal pool fairy shrimp, a species proposed for federal listing as Endangered. Burrowing owls, a California Species of Special Concern, were also seen on the project site during field surveys, and they too would be impacted by the loss of foraging habitat when the access roads, the power plant, and ethanol facility were constructed.

The California Department of Fish and Game required mitigation for impacts to the Swainson's hawk and the burrowing owl. In addition, the U. S. Fish and Wildlife Service required mitigation for impacts to the vernal pool fairy shrimp and its vernal pool habitat. Mitigation included protection and monitoring of undisturbed wetlands and vernal pools within the project boundary for the life of the facility (Biological Resources Condition of Certification 6). In addition, the applicant agreed to a one time payment of $190,000 to be used for the purchase of approximately 90 acres of off-site conservation easements for the in perpetuity protection of Swainson's hawk nesting and foraging habitat (Biological Resources Condition of Certification 4). The applicant also agreed to provide $9000 to CEC each year for the life of the facility to fund annual monitoring and maintenance of the conservation easement(s) habitat (Biological Resource Condition of Certification 3). CEC agreed to administer all mitigation funds provided by the applicant.

The 7.5 mile underground water pipeline would utilize Sacramento River water, and threaten the winter run Chinook salmon, a federal and state listed Endangered species. Since the applicant intended to utilize existing pumps currently owned and operated by the Natomas Central Mutual Water Company, the California Department of Fish and Game required the applicant to fund the screening of the existing pumps, or install new screened pumps, to protect the winter run salmon.

Flood Hazards

Applicants' earliest designs placed project facilities in the floodway, an area that would routinely be underwater. By the time they filed the AFC, applicants had completely reconfigured the site, utilizing a balanced cut and fill technique to place all buildings above the 100 year flood plain. This was satisfactory to CEC staff engineers.

The local fire department was concerned that the access road would flood, preventing emergency access. Applicants responded by proposing a new emergency access road to be constructed above the 100 year flood level.

Many intervenors remained worried that large portions of the site would still be flooded in wet years. Applicants responded that while floods might shut down the ethanol plant temporarily, this posed no risk to the public. Other than the balanced cut and fill requirement, the Commission imposed no special conditions of certification in response to intervenors' flood-related concerns.

Hazardous Materials

Intervenors were concerned about dangers from fire, explosion, and the use of hazardous materials. Staff believed that potential impacts were properly mitigated once applicants agreed to: (a) establish an on-site fire brigade for the ethanol facility; (b) for NOx control, substitute aqueous ammonia instead of extremely hazardous anhydrous ammonia; and (c) find a less hazardous water treatment material than hydrazine. The Commission accepted staff's conditions of certification, rejecting intervenors’ call for a thirty year epidemiological study of project impacts to workers and nearby residents.

Air Quality

The powerplant's air emissions offsets were to come from the displacement of the field burning of rice straw and other agricultural waste feedstock required for the ethanol plant's manufacturing process, one more unique feature. Applicants' intention was to help implement the Rice Straw Burning Reduction Act of 1991 (commencing at Health and Safety Code section 41865), which called for major reductions in pollution from open field agricultural waste burning.

CEC air quality staff did raise some issues concerning the applicants' proposed offsets package. Applicants had as yet no contracts to obtain any agricultural wastes. Nor did the applicants plan to pay farmers any fee for the wastes, expecting that removal of the wastes would be payment enough since open field burning was now restricted. Applicants expected that farmers would be eager to dispose of their rice straw and other ag wastes.

Thus, although applicants' proposed offsets met the criteria of the Rice Straw Burning Reduction Act and satisfied the Sacramento Metropolitan Air Quality Management District, CEC staff perceived problems with offset calculation methodology, offset availability and offset locations. An acceptable methodology for calculating the offsets, based upon feedstock delivered to the ethanol plant, was developed among the parties (Air Quality Conditions of Certification 58-70). The availability issue was solved by clearly specifying that the powerplant could not operate unless the necessary offsets were obtained (Air Quality Condition of Certification 71.)

The applicants only indicated the basic scope of their proposed feedstock/offsets procurement area, a large agricultural region in the project's general vicinity, expected to primarily focus upon Colusa, Yuba, and Sutter counties. CEC staff preferred the offsets to be much closer to Sacramento, and upwind, from specific locations such as Yolo County where open-field burning has impacted Sacramento/Rio Linda air quality. Staff felt this would ensure that the offsets actually mitigated impacts from the powerplant's new emissions.

Applicants would not agree to any binding restrictions upon where they could obtain agricultural wastes. A major compromise was reached under which applicants pledged to "utilize good faith efforts to maximize the procurement of agricultural wastes" from within 15 miles of the project site, from areas where open field burning has been identified by local air pollution control officers as impacting Sacramento, and from areas where eliminating open field burning would most effectively benefit Sacramento and Rio Linda. (Air Quality Condition of Certification 77.) Based on this condition and the other conditions described above, staff and applicants resolved all of their differences on air quality.

Alternatives

Applicants provided a limited alternatives analysis in the AFC that looked at some sites within five miles of Sacramento County. Subsequently, applicants stated that the project had to be located in Sacramento County (the SMUD service area) by terms of their contract. Given the need for an ethanol plant site close to the rice fields, with rail transport, a natural gas supply, and a convenient substation, applicants maintained that no viable Sacramento County alternatives to their chosen Rio Linda location existed.

CEC staff initiated a comprehensive, regional analysis of over 50 alternative sites when it seemed that the Rio Linda site might be unacceptable, primarily due to the water supply, flooding, and zoning problems. Using a modified version of applicant's criteria (excluding the requirement for a Sacramento County location), preliminary screening indicated that several alternative locations outside of Sacramento County might be equal to or superior to the Rio Linda site because they had an adequate water supply, were not subject to flooding, and did not require re-zoning.

After SEPCO eliminated staff's flooding concerns, proposed a surface water supply, and demonstrated that the zoning non-conformity would be corrected, it then appeared to CEC staff that applicants had solved all the site-specific problems at Rio Linda which were the motivating factors behind staff's alternative site investigation. The Preliminary Staff Assessment concluded that the SEPCO project could be built at Rio Linda without any significant adverse environmental impacts. Therefore, CEC staff did not proceed beyond the preliminary screening level with its analysis of alternative sites.

Reliability

CEC staff was concerned that the ethanol facility might not operate reliably, based on its reliance upon newly-patented modifications to the chemical process and on Ark Energy’s plans to go directly from a laboratory-scale test to this full-size facility with no intermediate pilot-scale experience. Should the facility fail to operate reliably, it would not consume the biomass necessary to qualify for air emission reduction credits, and would not consume enough thermal energy for the powerplant to qualify as a cogenerator, earning its exemption from the Notice of Intention process.

Accordingly, staff proposed, and applicant and the Commission accepted, Reliability Conditions of Certification 2-4, that would require the owner to design and activate a plan to restore air offsets and cogeneration status in the event of a failure of the ethanol facility to perform to required levels. (Pages 47-48 of the CEC Decision.)

Land Use

The major land use issue involved close coordination between the Commission's AFC process and Sacramento County's schedule for approving the ethanol plant site re-zoning application. Neither entity would proceed to a final decision unless it could rely upon the other agency's prior decisions. Sacramento County needed the functional equivalent of an EIR in order to approve the re-zoning and the CEC needed a final re-zone in order conclude that the SEPCO project complied with local land use laws and the cogeneration plant could legally be constructed.

A joint schedule was devised by CEC staff and Sacramento County staff in which preliminary documents moved the process forward. The County utilized the Final Staff Assessment, and then the Presiding Member's Proposed Decision to move the zoning amendment from the Planning Commission to the Board of Supervisors. The Commission used the Supervisors' preliminary approval of the zoning amendment to grant the AFC on May 11, 1994, but that CEC Final Decision was not docketed (and not subject to reconsideration) until the Supervisors relied upon it in adopting the final zoning amendment on May 18, 1994. The CEC Final Decision was then docketed on May 24, 1994. (See paragraphs 9 & 10 of the May 11, 1994 Order, page 5 of the CEC Final Decision.)

Through this cooperative process, the ethanol plant's land use non-conformity was eliminated, allowing the Energy Commission to approve the SEPCO AFC.

Post Certification Filings

On July 1, 1994, the SEPCO licensees filed a Petition for License Modification to allow the project to operate as a stand-alone combined-cycle powerplant (without the ethanol facility). In a January 18, 1995 Decision the Commission retained the requirement that licensees construct a cogeneration plant. (Docket No. 92-AFC-2A).

The SEPCO project was never built due to a contractual dispute between SMUDFA and the ethanol plant partners. Essentially SMUD concluded that that the project had no future as a cogeneration plant due to perceived unreliability of the legally mandated ethanol thermal host. Unable to build the stand-alone powerplant it wanted, (See Docket No. 92-AFC-2A) SMUD preferred to abandon the project entirely.

SMUDFA terminated its development agreement with the ethanol plant entities on June 28, 1996, resulting in a lawsuit against SMUD for breach of contract in Sacramento County Superior Court. The parties reached an out of court settlement in which the ethanol developers retained all rights to the Energy Commission SEPCO license for a cogeneration plant.

Section 1720.3 of the Energy Commission Regulations (Title 20, California Code of Regulations, § 1720.3) sets a five-year deadline for starting construction on a project that the CEC has licensed. Prior to the deadline, the section does allow an applicant to request an extension "for good cause".

On August 19, 1999, just prior to the five-year deadline, the ethanol plant company filed a petition asking the Energy Commission to grant them three more years to build the project. Unfortunately, they had never found another powerplant partner to replace SMUD. Thus, the Energy Commission was facing its first ever petition for a license extension from an ethanol developer that literally had no powerplant.

The situation could have been treated as comical. Instead, the Commission first attempted to analyze this petition based upon the applicant's stated presumption that the original (long deceased) SMUD cogeneration plant continued to exist. It soon became evident that there was still no water supply for any aspect of the project, and the applicant ultimately admitted that it was "looking for" a new powerplant partner. In reality, there was no project over which the Energy Commission had any jurisdiction. The ethanol plant had not been constructed either. But even if there was now the possibility of building the ethanol facility, that was not a powerplant.

Commissioner Robert Laurie presided over this confusing proceeding. He gave the applicant every opportunity to describe its project before running out of patience. CEC Staff Compliance Project Manager Nancy Tronaas and Staff Counsel David Mundstock told the Committee there was an insufficient project for purposes of any analysis. Staff recommended denial of the petition.

Ultimately, a February 7, 2000 Committee Order directed the applicant to provide real evidence of a project, including documentation of the powerplant, a powerplant financial partner, and a confirmed water supply source. The March 17, 2000 response was applicant's withdrawal of the petition to extend the license. The Energy Commission terminated the proceeding on April 5, 2000, which meant that the SEPCO license finally expired.

A relatively short time later, a new version of the project was filed by another applicant, a 560 MW stand-alone powerplant on the original ethanol plant site. This current proceeding is the Rio Linda/Elverta Power Plant Project, Docket No. 01-AFC-1. CEC Staff is still trying to determine if it has a water supply.