[California Energy Commission Letterhead]


Energy Resources
Conservation and Development Commission

In the Matter of:                     )     Docket No. 99-AFC-5
Application for Certification         )     ORDER DENYING
for the OTAY MESA Generating Project  )     INTERLOCUTORY 
(PG&E National Energy Group)          )     APPEALS



The Committee designated to conduct proceedings in the above-captioned matter concluded evidentiary hearings on December 4, 2000. Prior to the close of evidentiary hearings, the Committee denied Intervenor Cabrillo Power's ("Intervenor") two requests for additional hearing dates to present more evidence on issues that were duly noticed and litigated during the course of the proceeding. Intervenor filed interlocutory appeals of the Committee's rulings as follows: 1) "Appeal of Committee Order Denying Request to Reopen Evidentiary Record to Allow Evidence Regarding Proposed Project's Impact on Electric System Reliability" (filed December 8, 2000); and 2) "Appeal of Committee Order Denying Request to Keep Evidentiary Hearing Record Open Regarding Cabrillo's Pending Offer of Proof on Air Quality" (filed December 15, 2000). Applicant and Staff timely filed responses in opposition to both appeals. Intervenor Duke Energy North America (DENA) filed a response in support of the second appeal. At our regularly scheduled business meeting on January 10, 2001, we conducted a public hearing on the appeals and took the matter under submission. By this Order, we deny both appeals.


Intervenor denominates its first request and appeal as concerning "reliability" and its second request and appeal as concerning "air quality"; however, both appeals deal with several interrelated subjects:

The Committee denied the first request, "concerning potential natural gas curtailment and impacts on system reliability," on the grounds that (1) natural gas curtailment is relevant only "to the extent that adverse environmental impacts to regional air quality may result from burning fuel oil at Encina and South Bay during curtailment events"; and (2) "issues regarding natural gas curtailment and system reliability in the San Diego service area, which are currently before the California Public Utilities Commission (CPUC), the California Independent System Operator (Cal-ISO), and the Federal Energy Regulatory Commission (FERC) will not be litigated in this proceeding." (Order re Evidentiary Ruling, November 28, 2000.) The Committee denied the second request, "to submit additional testimony regarding the potential impact of fuel supply issues on regional air quality," on the ground that "Cabrillo had ample opportunity to present this testimony during the evidentiary hearing schedule." (Post Hearing Scheduling Order, December 5, 2000.)

Intervenor asserts that the Committee ruling on the first request "stymied [its] efforts to rebut Applicant's assertion that [the project] would provide reliability to the San Diego grid." Notwithstanding Intervenor's characterization of its ability to rebut Applicant's position, the record is replete with direct and rebuttal testimony by Intervenor's witness as well as extensive cross-examination by Intervenor of Applicant, Staff, SDG&E, and Cal-ISO witnesses on the issue of system reliability related to topics of power plant efficiency, power plant reliability, and transmission system engineering. Although the Committee ruling narrowed the focus regarding system reliability, the record reveals that all parties were given wide latitude to present testimony on this issue. In addition, filings by Intervenor, DENA, and SDG&E that were submitted to the CPUC (Investigation 00-11-002 [November 2, 2000]) on natural gas constraints in the San Diego region were received into the evidentiary record in this case.

With respect to the Committee ruling on the second request, Intervenor claims that the Committee should have allowed its engineering witness to belatedly submit a modeling analysis that was not prepared in time for the duly noticed hearing on the topic of air quality. Intervenor argues that the modeling analysis of potential impacts on regional air quality from fuel oil burns involves a "simple" exercise that would rebut Staff's analysis. If that were the case, it is not clear why Intervenor did not provide this analysis during the course of the evidentiary hearing schedule. Indeed, Intervenor provided an expert air quality witness who presented extensive testimony that included an analysis of impacts to regional air quality. Intervenor claims that an offer of proof was submitted in support of its request to reopen the record on this issue; however, no offer of proof other than Intervenor's assertions as to the pendency of the modeling analysis appears in the record.


Intervenor's appeal regarding system reliability raises policy issues that would be more appropriately addressed by the Legislature. In the context of this case, however, we find that extensive written and oral testimony was received on electric grid reliability, the potential impacts of the project on the natural gas supply system, and potential regional air quality impacts associated with natural gas curtailments.

With regard to the relevance of such evidence, we note that in today's competitive market, it can be very difficult to assign appropriate responsibility for the costs of investments needed to avoid the problems of gas curtailment and transmission congestion, particularly when those problems occur relatively infrequently. We read the Committee Order to mean that parties, who wish to object to new facilities or propose conditions to their development based on the assertion that the new facilities will cause gas curtailment or transmission congestion impacts on existing facilities, must bear the burden of showing that the proposed conditions would be appropriate and would not impose undue burdens on competition.

We note that the FERC disapproved Cal-ISO's effort to impose on new facilities all responsibility for mitigating local transmission congestion costs. In the competitive market, the interest of each market participant in avoiding adverse impacts from new entrants to the market must normally be subjugated to the broader interest in promoting competition by new entrants. We do not take the position that evidence of reliability impacts from increased gas curtailment or transmission congestion is irrelevant. If, for example, an intervening party could show that the entire system will be less reliable (less able to deliver needed energy), with the addition of the new facility under most operating conditions, such a showing would be certainly relevant. By contrast, merely showing that there are a few operating conditions under which the system will not be able to receive all of the output of both the new facility and all existing facilities, although arguably relevant, would almost certainly not provide an adequate basis for the Commission to deny a license or impose expensive conditions on the license. Between these two extremes, there may be relevant showings of impacts on reliability that may or may not justify proposed permit conditions or even denial of the license. We believe that intervening parties should be able to offer evidence that the addition of a competing facility will harm reliability and to propose permit conditions to mitigate that harm; however, they have the burden of showing that the proposed conditions are reasonable.

We find that, in this case, Intervenor had adequate opportunity to present evidence of the project's potential impacts on reliability and regional air quality and to propose reasonable permit conditions to mitigate those impacts. For that reason, the appeals are denied.


Intervenor Cabrillo Power's interlocutory appeals filed December 8 and 15, 2000 are denied.

Dated: January 17, 2001


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