California Eases Environmental Requirements to Address Threatened Electricity Outages

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On June 30, California Governor Gavin Newsom signed Assembly Bill 205, a legislative effort to bolster the state’s energy resources and avoid outages like those California experienced in August 2020.  AB 205 creates a Strategic Reliability Reserve that will secure new emergency and temporary generators, retain existing resources, and encourage the development of new clean energy projects and energy storage systems.  To secure the resources needed to maintain the reliability of electric service, the legislation temporarily relaxes some of California’s strict environmental requirements.  AB 205 also provides an accelerated environmental review for new clean generation and suppliers of the components needed for these new units.

Background

The power outages in August 2020 exposed some weaknesses in the energy procurement practices of California’s electric utilities and other retail sellers of electricity.  In response, the California Public Utilities Commission (CPUC) ordered utilities to take expedited actions to procure 1,000 megawatts (MW) of additional generation and storage and to reduce demand to meet challenges to reliability expected for the summers of 2021 and 2022.  The CPUC subsequently ordered the utilities to procure an additional 1,000 to 2,000 MW for the summers of 2022 and 2023, and to procure 11,500 MW of additional resources spread from 2023 to 2026.

The near-term threats to reliability persisted and last summer California was confronted with forecasts of a possible shortfall during critical summer hours of 3,500 MW in 2021 and 5,000 MW in 2022.  In July 2021, Governor Newsom, citing low levels of reservoirs behind hydroelectric resources, record-breaking heat, and the threat that wildfires could disrupt the transmission lines bringing imported power into California, issued a proclamation declaring a state of emergency.  The proclamation temporarily suspended environmental restrictions on the operation of certain generating units during key hours.  The proclamation also accelerated the permitting process for new generation units and boosted demand-reduction efforts.

In May of this year, the California Independent System Operator (CAISO) issued its 2022 Summer Loads and Resources Assessment.  Despite the recent addition of 4,000 MW of capacity, CAISO projected a shortfall of 1,700 MW for summer 2022.

AB 205 established several programs in response to these threats to electric reliability.

Electricity Supply Strategic Reliability Reserve 

Under this program, the Department of Water Resources (DWR) is given broad authority to construct, own, operate, or contract with a variety of resources needed for summer reliability, including:

  • Extensions of the operating life of existing generation resources that were planned for retirement—potentially including the Diablo Canyon nuclear power plant that is scheduled to retire its generating units in 2024 and 2025;
  • New emergency and temporary generators of 5 MW or more, which could include diesel generators. DWR cannot operate diesel generators beyond July 31, 2023;
  • New energy storage systems of 20 MW or more;
  • Zero-emitting generating facilities of any size; and
  • Emerging zero-emission generating technologies that can provide at least 50% of their capacity after sundown, when solar energy falls off, and are capable of beginning operations by the end of 2026.

AB 205 also allows DWR to reimburse utilities for imported power delivered between July 1 and September 30, 2022, even if the cost of the imported power is above market rates and the amount of power exceeds the needs of the utility’s customers.

The contracts entered into and approvals granted by DWR related to the Strategic Reliability Reserve are exempt from review under the California Environmental Quality Act (CEQA), California’s anchor environmental statute.  Siting approval for DWR’s facilities is provided by an expedited version of the siting authority of the California Energy Commission (CEC) and is also exempt from CEQA.  The CEC’s siting approval is in lieu of any approvals by other state and federal agencies (to the extent permitted by federal law) and supersedes any applicable statute, ordinance, regulation, or standards of other state or federal agencies (again to the extent permitted under federal law).  The CEC’s decision whether or not to issue its approval is due within 180 days of the date the siting application is deemed complete, roughly half the time of the CEC’s usual siting review.  Moreover, AB 205 expresses the Legislature’s willingness to temporarily allow DWR to invest in conventional resources that emit carbon dioxide, contrary to the state’s goal of achieving a zero-carbon electric supply by 2045, although DWR is required to give priority to zero-emission resources.  This loosening of environmental requirements is temporary, and siting certificates granted under this expedited process are valid for no more than five years; any further operation is subject to normal permitting and environmental requirements.

Distributed Energy Backup Assets

A second reliability program authorizes the CEC to encourage the development of distributed resources that can be dispatched to provide emergency supply or load reduction during extreme events that threaten the reliability of the electric grid.  The CEC is authorized to allocate funds for efficiency upgrades, maintenance, and capacity additions to existing power plants and for deployment of new zero- or low- emission technologies, such as fuel cells or energy storage, at existing or new facilities.

Environmental Review for New Clean Generating and Storage Resources and Component Suppliers

In addition to the expedited environmental review for DWR’s Strategic Reliability  Reserve projects, AB 205 hopes to speed up the environmental review of new clean generating and storage resources by expanding access to the siting authority of the CEC.  The CEC currently has siting authority over thermal power plants with capacities of 50 MW or more and over the power lines tying those plants to the transmission grid.  AB 205 gives developers of solar photovoltaic and terrestrial wind generating facilities and energy storage facilities capable of storing at least 200 MWh of energy (equivalent to the output of a 50 MW facility for four hours) the option of applying for site certification by the CEC, until June 20, 2029.  In addition, that option would be extended to facilities for the manufacture, production, or assembly of energy storage systems, wind systems, solar photovoltaic systems, or the components of those systems, if the developer certifies that the project will require a capital investment of $250 million over five years.  Developers of thermal generation facilities with capacities of 50 MW or more that are not powered by fossil or nuclear fuels could also use this option.

The advantage of submitting to the CEC’s process is that the CEC’s siting authority under this option is exclusive, and its certification is in lieu of any permit, certificate, or similar document required by any state, local, or regional agency, or federal agency (to the extent permitted by federal law), with some limited exceptions.  The CEC’s certification also supersedes any applicable statute, ordinance, or regulation of any state, local, or regional agency, or federal agency (to the extent permitted by federal law), except component manufacturing facilities would still be subject to the requirements of the local air quality management district and the Department of Toxic Substances Control.

The new statute outlines an expedited process for environmental review of eligible projects.  The CEC will serve as the lead agency for the review required by CEQA.  The environmental review is to be completed within 270 days after the application is deemed complete, subject to certain limited extensions.  To achieve this expedited environmental review, the CEC will develop plans for timely consultations with relevant state and local agencies.  The CEC will schedule public informational sessions, public workshops, and a public scoping meeting early in the environmental review process.  Before certifying a site, the CEC must find that the construction or operation of the facility will have a net positive economic benefit on the local government that would have had permitting authority for the site.

The benefits provided to developers by the expedited permitting process come with certain obligations, including prevailing wage and project labor agreement requirements and contracts with community-based organizations for community benefits.  The application for certification must be accompanied by a fee of $250,000, plus additional fees based on the nameplate capacity of generation and storage facilities or the square footage of manufacturing facilities, with the total fee capped at $750,000.  Projects that receive certification are also subject to an annual fee of $25,000.

Conclusion

The temporary relaxation of California’s environmental requirements reflects the extreme circumstances the state is confronting and the Legislature’s concern about the disruptions caused by power outages.  But AB 205 retains an expedited environmental review, prioritizes zero-emission resources, and displays a consistent intent to return to full environmental requirements once the state gets past the current emergency.  AB 205 also keeps open the option of extending the operating life of the Diablo Canyon Power Plant, an option that the Newsom administration has signaled that it would like to pursue further.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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