Certification Granted on December 10, 1986

Staff Counsel: Dick Ratliff

Hearing Officer: Stan Valkosky

Presiding Member: Commissioner Arturo Gandara

AFC Filing and Data Adequacy

The Sycamore Cogeneration Company, a partnership of Texaco and a Southern California Edison unregulated subsidiary, filed an AFC on November 14, 1984 for a 300 MW natural gas-fired cogeneration plant, named the Sycamore Cogeneration Project (Sycamore), at Texaco’s Kern River Oilfield in Kern County, near Bakersfield. It was found data adequate by the Energy Commission on January 9, 1985.

Cogeneration/Need Overview

Sycamore was designed as a clone of the Kern River Cogeneration Project, Docket No. 82-AFC-2, which had been certified with little controversy in 1983 as the first cogeneration plant licensed by the Energy Commission. Natural gas-fired cogeneration was becoming the CEC’s dominant preferred technology, replacing geothermal. The largest cogeneration facilities were oilfield and oil refinery plants, with their heavily industrialized sites that frequently afforded available air emissions offsets and few opportunities for additional adverse environmental impacts.

However, California was now facing an emerging electricity surplus, caused by completion of the Diablo Canyon and San Onofre nuclear power plants, intensive QF construction of facilities under 50 MW, and the availability of cheaper electricity from out of state. This was reflected in the 1985 Electricity Report (ER V), with much more complex and difficult need tests, even for preferred technologies.

In 1986 CEC staff had concluded that the number of proposed powerplants (both AFCs and SPPEs) seeking Energy Commission approval greatly exceeded the need for new facilities in the SCE service area, as established under Electricity Report 5 (ER 5). CEC staff thus presented testimony challenging the need for a series of facilities, starting with Arco-Watson (Docket No. 85-AFC-1). Sycamore was not spared a major adjudication of demand conformance.

In each of these contested proceedings, the applicant won and CEC staff lost. After this string of defeats, in which the challenged powerplants were all found needed by several Committees and the Commission as a whole, CEC staff ceased to adjudicate demand conformance. The Sycamore decision referred to the entire experience under ER 5 as a "regulatory quagmire", while looking towards salvation from ER 6. (CEC Decision, introductory page entitled "EVOLUTION", first paragraph.)

There was also the problem of qualifying facilities (QFs) such as Sycamore, in which Southern California Edison or one of its subsidiaries, owned held an ownership interest as high as a 50% share. While such partnerships were allowed under the Public Utilities Regulatory Policies Act (PURPA), it meant that Edison would be selling power to itself. The price SCE paid for such electricity came from a complex and often shifting set of non-standard, negotiated contracts. This practice became known as "self-dealing", and much later, after an investigation, the PUC staff found projects where, in staff’s opinion, it had led to inflated prices for Edison’s ratepayers.

Even when the Energy Commission reviewed these non-standard contracts, they were inevitably found to not exceed a utility’s avoided cost levels, as established by the PUC in standard offer contracts. Thus, while other aspects of demand conformance were vigorously adjudicated at this time, the contract pricing provisions went virtually un-contested. In hindsight, I believe that AFC contracts with self-dealing could have provided an opportunity for CEC/PUC cooperation aimed at affording greater protection for ratepayers. On the other hand, the negotiated, non-standard provisions of these contracts were routinely granted confidential status by the CEC, impeding the kind of public investigation that might have been appropriate.

Project Description

The Sycamore Cogeneration Project would burn natural gas to generate steam for Texaco’s Thermally Enhanced Oil Recovery (TEOR) process, a process in which the thick, underground oil is heated to a more liquid state, so that it can be pumped to the surface. The cogeneration plant would also generate 300 MW for sale to Southern California Edison, operating as a baseload facility with a projected 90 percent capacity factor.

Issues

Air Quality

Air quality was initially disputed between applicant, CEC staff, the Air Resources Board (ARB), and the Kern County Air Pollution Control District (KCAPCD). CEC staff and ARB insisted that the applicant revise its offset package to include additional mitigation so that the project would not exacerbate existing violations of ambient air quality emissions standards (mitigation beyond air district requirements). After two augmentations, everyone agreed that the additional offsets resulted in a net air quality benefit. (Page 100 of the CEC Decision.)

In spite of that agreement, each party insisted upon revising the air district’s Determination of Compliance (DOC) to reflect a particular perspective on subjects such as offset calculations, testing and emissions sampling limits. After multiple comments and clarifications, (a "confusing dialogue", according to the Committee at page 100 of the CEC Decision), a final CEC staff revision of the final DOC was incorporated into the decision. (Pages 100-114 of the CEC Decision.)

Biology

Although the Texaco oilfield was highly disturbed land, the Sycamore Project could still adversely impact the San Joaquin Kit Fox, a fully protected species under state and federal law. Biologists from CEC staff, the U.S. Fish and Wildlife Service (USFWS), and the California Department of Fish and Game (CDFG) initially found Texaco’s mitigation plan for protecting kit fox dens to be inadequate. The merits of competing mitigation plans were subsequently argued at contested hearings. (Page 115-116 of the CEC Decision.)

In the face of a possible CDFG finding of jeopardy to the kit fox if Sycamore’s mitigation plan were adopted, all parties sought to negotiate a settlement. The resulting compromise mitigation package satisfied everyone, with Sycamore agreeing to kit fox on-site and off-site habitat improvement, including creation of a $1,100,000 fund to purchase acreage for preservation of the kit fox. The Committee congratulated all the parties, calling this package "a breakthrough in preserving biological resources while permitting needed energy development." (Pages 116-119 of the CEC Decision; Biology Condition of Certification 5 at page 125 of the CEC Decision.)

Demand Conformance

The demand conformance adjudication in Sycamore consumed three days of hearings, followed by numerous post-hearing submissions. It amounted to a partial re-run of ARCO-Watson, Docket No. 85-AFC-1. However, the ER 5 tests were different. ARCO-Watson had been under the Unspecified Reserved Need Test. Sycamore, having filed its AFC earlier than ARCO, had been allocated a portion of capacity set aside for cogeneration projects.

Thus, Sycamore was evaluated under ER V’s least burdensome standard, the Specified Reserved Need Test. Both tests required a finding that the project matched SCE’s load conditions. This was Condition 3 in ARCO-Watson (Unspecified Reserved Need Test), and Condition 4a for Sycamore (Specified Reserved Need Test). Condition 4a was the focus of the Sycamore CEC staff case.

As in ARCO, CEC staff rejected and challenged a variety of ER V’s assumptions regarding the SCE system, in areas such as the availability of economy energy and the likelihood of certain contract renewals. These were rebuttable presumptions, in which ER V allowed a challenge, but staff had the burden of proof. Sycamore responded with its own attacks upon ER V, claiming that the use of rebuttable presumptions was unconstitutional, depriving the applicant of equal treatment under the law. A parade of witnesses, including four from SCE, testifying in response to a CEC staff request, also provided evidence on the merits of the ER V assumptions. (Pages 19-20, 25-29 of the CEC Decision.)

The Committee dismissed many of the arguments it heard as far beyond the scope of an individual siting case. As in ARCO-Watson, the Committee concluded that CEC staff had failed to rebut key ER V assumptions, such as zero economy energy. Therefore, utilizing ER V assumptions, the Committee and the Commission held that Sycamore "reasonably matches" SCE’s load conditions and passes Condition 4a of the Specified Reserved Need Test. Since that condition was the only one challenged by staff, Sycamore passed the Specified Reserved Need Test and satisfied Demand Conformance under ER V. (Pages 21-24, 30-38 of the CEC Decision.) In light of the 2000-2001 electricity supply crisis it remains fortunate that projects such as Sycamore were licensed.

Adoption.

The Energy Commission unanimously certified the Sycamore Cogeneration Project on December 10, 1986. The 300 MW facility was constructed, one of the largest projects licensed by the Energy Commission prior to 1999.