BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1318 - V. Manuel Perez Hearing Date:
August 24, 2009 A
As Amended: July 6, 2009 FISCAL/Urgency
B
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3
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DESCRIPTION
Under current law , known as the California Environmental Quality Act
(CEQA), an environmental impact report shall be prepared on a
project that may have a significant effect on our environment.
Under current law , every air quality management district in a
federal non-attainment area (e.g. the greater Los Angeles area) is
required to establish a system by which major new and modified
sources of air pollutants are required to obtain permits, meet
emission standards that constitute the lowest achievable emission
rates, and obtain equivalent emission reductions, or offsets, from
other sources. Pursuant to this requirement, the South Coast Air
Quality Management District (SCAQMD) promulgated various rules.
Under it's rules, the SCAQMD has accumulated emission reduction
credits in an internal bank which it makes available to specified
entities for specified purposes.
In Los Angeles Superior Court , certain of the district's rules were
found to violate CEQA, including the rule under which the SCAQMD
accumulated the emission reduction credits in its internal bank.
This bill abrogates the Court's decision by requiring the district
to transfer sufficient air emission credits to the Sentinel
Powerplant so that it may operate for up to 3200 hours per year.
The district is also required to transfer air emission credits for
all eligible essential public service projects.
This bill requires that Sentinel, in exchange for the air emission
credits, pay the SCAQMD mitigation fees. The mitigation fees may
only be used for emission reduction purposes. At least 30% of the
fees must be used for emission reductions in areas within close
proximity to the Sentinel powerplant and at least 30% of the fees
must be used for emission reductions in areas which the district
designates as environmental justice areas.
This bill exempts the use of the credits for the Sentinel powerplant
and for essential public service projects from CEQA.
BACKGROUND
(This bill deals with the same issues that are addressed in SB 696
(Wright), which was heard and approved earlier this year by this
committee. For convenience, a brief background is provided here.
For a more thorough background, please refer to the SB 696 committee
analysis.)
In Superior Court, the SCAQMD was found to have illegally revised
its rules to provide air emission credits to powerplants. Until the
district legally revises its rules through a valid California
Environmental Quality Act (CEQA) analysis, the Court has prohibited
the district from issuing any air emissions permits. This has
halted powerplant development within the district's jurisdiction and
as well thousands of other non-powerplant projects.
The Sentinel Powerplant project is an 850 MW natural gas-fired
powerplant owned by Competitive Power Ventures (CPV) proposed for
Riverside County near Palm Springs. The plant, which must be
approved by the California Energy Commission, has been proposed to
operate up to 3200 hours per year, fewer hours than a baseload
powerplant but more hours than a typical peaker powerplant. Output
of the powerplant has been contracted to Southern California Edison.
This bill is similar to, but narrower than, SB 696. Simply put,
both bills abrogate the Superior Court's decision and provide a CEQA
exemption. While SB 696 authorizes credits for three
powerplants<1>, essential public service projects<2> and projects
which were previously exempt from obtaining credits - these projects
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<1> The three powerplants included in SB 696 are the Sentinel
powerplant, the NRG El Segundo repowering project, and the Edison
Mission Energy Walnut Creek powerplant.
<2> The district defines essential public services as sewage
treatment facilities, prisons, police facilities, fire fighting
facilities, schools, hospitals, construction and operation of a
landfill gas control or processing facility, water delivery
operations, and public transit. (Rule 1302(m))
were imprecisely described as "small business" projects, but they
also included powerplant repowering, emergency equipment, equipment
replacement, equipment relocations for businesses of any size - this
bill authorizes credits for only the Sentinel powerplant and the
essential public service projects.
COMMENTS
1. Author's Statement - The author believes it important to
provide air credits to essential public services and to the
Sentinel powerplant project. The author is concerned that
public agencies seeking credits have been forced to either
delay construction of their planned facilities or pay very high
prices for credits. The author views the Sentinel powerplant
as essential to advancing the State's renewable energy and
climate change goals as well as enhancing electrical grid
reliability. In support the author cites an April 2008 report
by the California Independent System Operator (CAISO) and a
2009 Staff Draft Report by the California Energy Commission.
Supporters also note significant economic development benefits
from the project including 350 construction jobs, $25 million
in sales tax revenue, and $6.4 million in annual property
taxes.
2. Cleaner Air for Los Angeles? - CVP contends that the
Sentinel powerplant is unique among the three powerplants which
are included in SB 696 in that it improves air quality within
the Los Angeles air basin. This is because the Sentinel plant
is located outside of the Los Angeles air basin and because the
plant will reduce the number of hours other in-basin, dirtier
powerplants need to operate. This is a logical consequence,
but when the Committee contacted the CAISO to validate this
assertion they could not do so because the CAISO has not yet
performed the necessary interconnection studies.
The bill requires Sentinel to pay $64 million in mitigation
fees to the SCAQMD. Most of these fees must be spent on
emission reduction projects.
The CEC has completed its Final Staff Assessment on the
Sentinel powerplant, which is the staff analysis voted upon by
the CEC Commissioners. That analysis concludes that for all
technical areas other than air quality, the project will not
cause a significant adverse environmental impact and conforms
to all applicable laws, ordinances, regulations and
standards.<3>
3. Why Not Two? - NRG, the project developer for the El Segundo
powerplant, also argues that they are in a unique position.
This project is a repowering of an existing coastal peaker
plant. They contend that they had obtained the necessary
permits to repower their plant in 2005. In 2007 they revised
their proposal so that their plant would no longer use sea
water for cooling, or Once Through Cooling (OTC), a long term
state water quality objective, in the process returning their
emission credits in the expectation of the permits being
reissued when their revised proposal was approved. However,
during the project review the Superior Court order was issued,
creating a moratorium on new emissions credits, leaving the El
Segundo powerplant in the lurch.
4. Supply Adequacy in Los Angeles - There has been much concern
about the adequacy of the electric supply in Los Angeles, going
back to the 2001 electricity crisis. Efforts to streamline
powerplant siting and encourage energy efficiency and customer
demand response seem to have paid off, again. In its 2008
summer outlook, the CAISO forecast a comfortable 21% reserve
margin for southern California based on probable conditions.
In its 2009 summer outlook, the CAISO forecast an even larger
32% reserve margin, owing to reduced demand because of the poor
economy. (The CPUC requires utilities to have a minimum 15%
reserve margin.)
These substantial margins should not be taken for granted. The
air emission restrictions and pending OTC restrictions on the
use of seawater for cooling powerplants may have a severe
impact on supply adequacy. A 2009 Staff Draft Report by the
CEC notes that new or repowered natural gas generation is
required in Southern California to "firm up" intermittent
renewable generation, address OTC impacts, replace aging
powerplants, and meet load growth.<4> The report forecasts
that if the three powerplants (Sentinel, El Segundo, Walnut
Creek) are not built, the reserve margins could drop below the
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<3> "Final Staff Assessment, CVP Sentinel Energy Project", October
2008. (CEC-700-2008-005-FSA)
<4> "Potential Impacts of the South Coast Air Quality Management
District Air Credit Limitations and once-Through Cooling Mitigation
on Southern California's Electricity System", Staff Draft Paper,
February 2009. (CEC-200-2009-002-SD)
CPUC minimum 15% in 2011. However, this forecast may well be
much too pessimistic as it used older data with higher demand
forecasts than the CAISO's 2009 summer outlook. Committee
staff has asked the CEC to update that report to reflect
current demand forecasts.
Southern California Edison has seen its demand decline by 2% -
3% year versus year (weather adjusted). They do not expect
load growth to return to normal for several years. While
warning that forecasting demand and generation is an uncertain
science, they do not forsee a significant effect to reliability
if the three powerplants are slightly delayed.
5. Policy-maker or Regulator? - This bill turns the Legislature
into a shadow court, where parties go when they are
dissatisfied with decisions of actual courts. But the
Legislature, a policy-making institution, seems oddly suited to
decide which powerplants get built and which don't, a
fact-based decision that is delegated to expert regulators.
This could have been avoided had the SCAQMD complied with the
2008 court order and performed a valid CEQA analysis on its
rule change. (The district has hired a consultant to perform
the analysis though completion is apparently not imminent.)
6. Finding A Permanent Solution - Whether or not this bill
becomes law, a permanent solution is needed. In addition to
the Sentinel powerplant, nine other proposed powerplants are
impacted by the SCAQMD air credits issue and seven are impacted
by the OTC issue. This will be complicated because it involves
at least four state agencies and a regional agency.
Complicating this further, the OTC ban and emission credits
regime are state responses to federal law. Any state solution
will need to pass federal muster, and the one contained in this
bill, according to the opponents, does not.
The Administration is best positioned to broker a solution to
this multidimensional problem, having appointments to the
governing bodies of all the agencies, but they seem to have
taken only small steps. Some work has begun, and at least with
the OTC ban there have been initial steps toward a solution.
But the SCAQMD emission credits issue has not been considered
except in an informational way. Directing the relevant
agencies to consider the issues with a deadline for developing
solutions may be a start. Directing the SCAQMD to complete its
CEQA analysis may be another alternative.
7. Innocent Victims - During the hearing on SB 696 there was
much discussion on the effect of the court order on air
emission permits that were issued prior to the effective date
of the court order, essential public service projects and
exempt projects. Both the plaintiffs and defendants to the
lawsuit expressed confidence that they could resolve these
issues.
With regard to permits issued prior to the effective date of
the court order there is agreement and a filing to the court is
pending, resolving the problem for 3000 projects. With regard
to the essential public service projects (Rule 1309.1(b)(3)),
and the exempt projects (e.g. small businesses, repowering, and
other non-powerplant projects (Rule 1304)) the parties
discussed and proposed a settlement but did not reach an
agreement.
In addition to the Sentinel powerplant, this bill requires the
district to provide emission credits for essential public
services. If the committee wants to include the exempt
projects then the bill will need to be amended to include the
projects contained in SCAQMD Rule 1304 as amended June 14,
1996.
8. Abrogates Court Order, CEQA Exemption - This bill explicitly
abrogates the holdings of the Superior Court in Natural
Resources Defense Council v. South Coast Air Quality Management
District (2007 Superior Court of Los Angeles County Case No. BS
110792) to the extent that they are inconsistent with the bill.
It also provides an exemption to CEQA.
9. Double-referral - This bill has been double referred to the
Senate Committee on Environmental Quality. The committee will
hear this bill on August 26, 2009. Because of the short
interval between hearings, any amendments this committee
desires to make will need to be adopted in the next committee.
A motion to approve this bill should be "Do Pass".
10. Related Legislation - SB 696
(Wright) is pending in the Senate Environmental Quality
Committee. It is scheduled for hearing on Wednesday, August
26, the same day that this bill is scheduled to be heard should
it pass this committee.
ASSEMBLY VOTES
Assembly Floor (63-3)
Assembly Appropriations Committee (15-0)
Assembly Utilities and Commerce Committee
(13-0)
Assembly Natural Resources Committee (7-0)
POSITIONS
Sponsor:
Competitive Power Ventures
State Building Trades Construction Council of California
Support:
Building Industry Association/Desert Chapter
City of Cathedral City
City of Desert Hot Springs
City of Palm Springs
Desert Water Agency
Desert Wind Energy Association
Environmental Service Professionals
Express Mortgage Lenders, Inc.
Family Service of the Desert
Indio Chamber of Commerce
International Brotherhood Electrical Workers, 9th District
International Brotherhood Electrical Workers, Local 440
Palm Springs Economic Development Corporation
Southern California Edison
One individual
Oppose:
Breathe California
California League of Conservation Voters
CBE
Natural Resources Defense Council
Planning and Conservation League
Sierra Club California
Union of Concerned Scientists
Randy Chinn
AB 1318 Analysis
Hearing Date: August 24, 2009