PROTESTS
SDG&E requested a shortened protest period (5 days) ending on August 6, 2000. On August 15, 2000, the Energy Division, via e-mail, informed parties served with the Advice Letter that SDG&E's request for a shortened protest period was denied.
SDG&E's Advice Letter AL 1210-G was timely protested by:
California Independent System Operator (ISO) August 7, 2000
Air Pollution Control District, County of San Diego, August 7, 2000; Protest Augmented August 21, 2000.
Electric Generator Alliance (EGA) representing Cabrillo Power and Duke Energy North America, August 7, 2000
Air Resources Board, August 8, 2000; Protest Augmented August 21, 2000
Utility Consumers' Action Network (UCAN) and Environmental Health Coalition, Joint Protest, August 13, 2000
City of Carlsbad, August 15, 2000
American Lung Association, August 17, 2000
SDG&E responded to the protests of the California Independent System Operator (ISO), Air Resources Board, Air Pollution Control District County of San Diego, and Cabrillo Power and Duke Energy North America on August 14, 2000 and to the protest of UCAN and the Environmental Health Coalition on August 23, 2000.
The following is a more detailed summary of the major issues raised in the protests:
1. The protest of the California ISO argues that if the three Power Plants are treated as interruptible gas customers the ability of the affected plants to produce electricity could be severely limited. The ISO specifically protests the proposal that SDG&E will contact the ISO prior to a power plant curtailment to determine if the ISO can take steps to increase import power and reduce local generation in the utility's service territory and thereby potentially eliminate the need for a gas curtailment. The ISO requests that SDG&E be required to adhere to established electric reliability criteria before contacting the ISO to confirm that electric reliability would not be affected by a contemplated curtailment.
The ISO argues that SDG&E should not be permitted to shift the burden of admitted deficiencies of its gas transportation system to the ISO Controlled Grid. An increase in import power may either be more expensive than the generation produced by local power plants, or unavailable altogether. There is an increased likelihood of this due to the recent price cap reductions in the ISO's markets. Furthermore, local generation may be required to maintain electric power imports at current levels and insure local area reliability.
The ISO requests that SDG&E not be permitted to implement or continue a gas curtailment to the affect plants anytime the ISO projects or has declared a Stage 1 of the Electrical Emergency Plan or when the SDG&E area's projected or actual electric load is greater than 3900 MW (the level at which all San Diego steam units are required for local reliability under current reliability must run contracts).
The ISO is also concerned that switching power plants from gas to fuel-oil can cause the power plant to trip off-line, which could affect system reliability. It recommends that the Commission not permit SDG&E to curtail power plants anytime a curtailment would create or increase the risk of violating applicable reliability criteria of (1) dropping load, (2) overloading system facilities, or (3) operating outside of known stable conditions.
Lastly, the ISO argues that switching from gas to fuel-oil will raise air quality issues which may mean that power plants will not be permitted to operate during the period of gas curtailment; or even if they are permitted to operate, they would be held accountable for the increased emissions, and thus may jeopardize their ability to operate these plants in the future.
2. The protest of the Electric Generator Alliance (EGA), (which consists for the purposes of this protest of Cabrillo Power I LLC, owner of the Encina Power Plant and Duke Energy North America LLC which has a 10-year lease to operate the South Bay Power Plant) argues that AL 1210-G is an unlawful attempt to alter contracts between electric generators and SDG&E that will have serious negative effects on reliability of the San Diego power market. EGA suggests that the Commission institute an investigation into the status of the SDG&E gas system, the reliability of its gas service, the resulting implications for the electric supply situation in San Diego, and the adoption of solutions to enhance the operation of the Sempra gas system.
EGA states that SDG&E predicted a capacity constraint on its system over a year ago, when Sempra entered into export arrangements to supply gas to a power generation facility in Mexico owned by its affiliate. Furthermore, Sempra encouraged electric generators and other non-core customers to sign a two-year firm commitment in the spring of 2000 so that they could avoid the curtailment problems that the predicted capacity constraints could generate. The members of EGA relied on the advice of Sempra to elect to be firm non-core customers and were not given any notice of discriminatory treatment of electric generation versus other non-core customers. EGA argues that other noncore customers who have elected not to install fuel-switching capabilities are being given preferential treatment over the electric generators who take the exact same service. Additionally, SDG&E's proposal would cause the firm commercial and industrial customers to shut down irrespective of a shortage of gas capacity since SDG&E would be required to curtail these same customers' electric usage as a result of generation from the EGA plants.
In addition to the above arguments, EGA states that a switch to fuel oil would raise significant environmental concerns because NOx and SOx emissions resulting from the burning of fuel oil are subject to the San Diego Air Pollution Control District regulations. Encina has retrofitted two larger units with low NOx burners, which reduce NOx emissions by approximately 60 per cent. However, retrofitting of the largest boiler will not be complete until sometime in late November 2000.
The maximum net electrical output of each of the five units would be reduced if fired on residual oil. In the case of the South Bay power plant, there would two consequences resulting from burning fuel oil. First, it would take an hour to switch from gas to oil, during which time the plant could not operate higher than a 50 per cent capacity factor. Second, oil firing of South Bay would result in derating Unit 1 by 10 per cent. EGA contends that it would be irresponsible of the Commission to create a situation in which power production is reduced at a time in which there is a clearly recognized severe shortage in the state. Furthermore, if it becomes necessary to purchase more expensive electricity, the Commission could be contributing to the increases in San Diego's purchased power costs.
In the Advice Letter 1210-G, Sempra implies that when SDG&E was operating the power plants, it operated its electric generation facilities in a manner which protected the level of gas supply in its system. EGA argues that if this was so, SDG&E purposely operated its electric plants at higher cost and less efficiently. The real reason for the shortage of gas capacity in the SDG&E territory, states EGA, is because Sempra has sold pipeline transportation capacity for exports into Mexico without adding additional gas facilities needed to meet the demand.
EGA urges rejection of A.L.1210-G and supports initiation of an investigation into the status of the SDG&E gas system, the reliability of SDG&E's gas service, the resulting implications for the electric supply situation in San Diego, and the adoption of solutions to enhance the operation of the Sempra gas system.
3. The San Diego CountyAir Pollution Control District (District) filed a protest on August 7, 2000 and augmented its protest with further information on August 21, 2000. Their arguments center on air quality issues and the public health impacts of switching to fuel-oil. In summary, the District calls for the CPUC to investigate whether the high demand for gas is occurring because the power plants are producing power for sale out of the state.
The District argues that when the power plants are forced to switch from burning natural gas to burning residual oil, the air pollution emissions will increase significantly for oxides of nitrogen (an ambient ozone precursor), fine particulate matter, sulfur oxides, and toxic air contaminants. This will likely cause increased ozone levels. San Diego County has not had an exceedance of the federal ozone standard in calendar year 2000. The District is concerned that an exceedance may affect a currently pending EPA decision on whether or not to grant the air basin a one-year extension for demonstrating attainment of the federal ozone standard. If the EPA does not grant the extension, San Diego County will be "bumped up" to a severe ozone nonattainment area and more stringent emission control requirements will be imposed on San Diego County businesses. This, in turn, can have an effect on the economy of the county.
In addition, the increased emissions and ambient levels of fine particulates from burning fuel oil will have an impact on the public health environment. The District cannot determine the extent of the public health implications because it has been unable to obtain specific information concerning the proposal from Sempra Energy. However, it is known there are significant adverse health impacts associated with increased ambient levels of fine particulate matter. These include increased mortality, increased risks of cancer, and increased heart and respiratory diseases (including asthma).
The District states that since the problem of natural gas curtailment would not exist if Sempra/SDG&E was not sending significant quantities of natural gas to the Rosarito power plant commencing in June, 2000, it believes that Sempra should require the Rosarito power plant to switch to ultra-low sulfur fuel oil during periods of high potential for curtailment in order to avoid curtailment of the two plants in San Diego County. In addition, the District states that Sempra should propose to Encina and South Bay that they curtail electricity generation in the off-peak hours to allow for line pack to avoid curtailment. In the event these alternatives are not feasible, the District states that Sempra should be required to evaluate the air quality and public health impacts of first curtailing gas to the peaking turbines formerly owned by
SDG&E and the feasibility of providing ultra-low sulfur fuel for these turbines before requiring the power plants to burn residual oil.
4. The Air Resources Board (ARB) of the State of California filed a protest on August 8, 2000 and augmented it on August 21, 2000. The ARB is concerned that approval of A.L.1210-G will result in power plants having to switch from natural gas to liquid fuels thereby increasing emissions of particulate matter, sulfur and ozone precursors. The ARB plans to continue to coordinate with the California Air Pollution Control Officers Association, which includes the San Diego County Air Pollution District (District) to evaluate the potential adverse air quality impacts associated with curtailments in natural gas supplies. They urge the CPUC to consider the options offered by the District for reducing the need for natural gas curtailments in our analysis and response to A.L.1210-G.
5. The Utility Consumers' Action Network (UCAN) and Environmental Health Coalition (EHC) filed a joint protest on August 13, 2000. UCAN and EHC are "extremely concerned" about the impacts the proposed curtailment would have on the ability of San Diego to deal with its electric generation problems and on public health and air quality in the San Diego Region. They indicate that daily emissions of "criteria pollutants" such as oxides of nitrogen (NOx) would likely double from the affect power plants. In addition, emissions of sulfur oxides (Sox), fine particles, and toxic air contaminants (TACSs) such as benzene and heavy metals, would also be expected to increase substantially. Increases in smog, particulate, and toxin levels have direct and serious impacts on public health. UCAN and EHC express concern that SDG&E's proposed curtailment would drastically increase emissions from these plants at exactly the time when local smog levels would be highest. Curtailment may result in a further exceedance of state, and possibly federal, ozone standards.
UCAN and EHC ask that the CPUC complete an analysis of SDG&E's proposed curtailment under the California Environmental Quality Act (CEQA) prior to taking action. Protestants argue that although SDG&E claims this is an "emergency", SDG&E has created the emergency of which it complains. They contend that SDG&E allowed smaller customers to rely on its natural gas supply, failed to plan for the ramifications of a deregulated energy market, and initiated gas supply to Mexico, thereby producing the crisis itself.
6. The City of Carlsbad protested A.L.1210-G on August 15, 2000. The City of Carlsbad protests the switch from natural gas to residual oil because it is expected to increase substantially criteria pollutants such as sulfur oxides (Sox), fine particles and toxic air contaminant emissions such as benzene and heavy metals. It notes that San Diego County is currently designated a "serious non-attainment" area regarding federal smog standards, and is also in non-attainment of state and federal particulate standards. SDG&E's proposed curtailment comes at a time when the local smog levels would be highest.
The City of Carlsbad states that although Sempra Energy claims that it is being forced into near-curtailment situations on a regular basis because the new owners of the power plants are creating an unprecedented demand on natural gas supplies, Sempra failed to mention that it has began supplying significant quantities of natural gas to its Rosarito generation power plant in Mexico.
7. The American Lung Association of San Diego and Imperial Counties (ALA SD/IC) protested the advice letter on August 17, 2000 on the basis of the adverse affect to air quality and the public health impacts of the proposed revision. ALA SD/IC cites several studies that demonstrate the health hazards of high ozone levels which include an increase in respiratory disease, an increase in hospital emergency room visits, an increase in the number of sick days by the workforce, and premature death due to excessive particulate matter, ozone, and other toxic air contaminants.
It asks the CPUC to recognize the serious public health and air quality consequences to be considered in evaluating Sempra Energy's request,
and that the public must be a party in these considerations. The ALA SD/IC suggests that any additional profits that Sempra Energy may realize by supplying natural gas to other customers rather than local power plants should be used to help mitigate local air quality impacts.
Lastly the ALA SD/IC contends in their protest that Sempra Energy fails to document the significant quantities of natural gas that it has recently begun supplying to the Rosarito power plant in Baja California, Mexico.
RESPONSE TO PROTESTS
On August 14, 2000, Sempra Energy, on behalf of (SDG&E) responded to the protests of the Air Resources Board, California ISO, Air Pollution Control District, and the (EGA) In response to Protestants objections to the expedited nature of SDG&E's request, SDG&E states that they were unable to meet with the Power Plants to discuss their proposal in detail prior to filing the Advice Letter 1210-G since the "stresses SDG&E's gas system has recently begun experiencing came on suddenly and unexpectedly. SDG&E apologizes for any misunderstandings that led to protests due to their inability to conduct advance meetings with protesting parties. They further state that curtailments have been avoided over the last several weeks through prudent and creative system management.
SDG&E states that the proposed change will not increase curtailments of the Power Plants - because the hourly demand for gas of noncore commercial and industrial customers is approximately 7,000 cubic feet, 1/10th of one percent of the EG hourly demand of 5 million cubic feet. They state that this temporary revision will protect noncore commercial and industrial customers from an unnecessary curtailment risk while having no practical effect on the frequency, size or duration of any Power Plant curtailment.
They further state that the proposal will not result in increased oil burns and will not harm air quality in either San Diego or Mexico and, in fact, will help air quality for the following reasons: (1) Some of the alternative backup fuel systems of SDG&E's noncore commercial and industrial customers use "dirtier" fuel such as diesel or kerosene and generally do not have sophisticated emissions-control equipment. (2) Under the current curtailment rules, the Power Plants are currently curtailed on a block-by-block basis. If an entire Power Plant is forced off the system, that customer may be forced to switch to oil. Under the proposed rules, the Power Plants would be curtailed on a pro-rata basis according to their percentage of system usage. (3) SDG&E proposes to consult with the ISO to determine if the ISO can take steps to increase import power and reduce local generation.
On August 23, 2000, Sempra Energy on behalf of SDG&E responded to the protest of UCAN and the Environmental Health Coalition. The response states that Protestants objection on the grounds that the proposed change will harm the environment is not well founded. SDG&E asserts that additional oil burns will not materialize under its proposal, and there will be no decrease in the supply of electricity.
On September 11, 2000, Sempra Energy on behalf of SDG&E responded to the protest of the American Lung Association of San Diego and Imperial Counties (ALA SD/IC) dated August 17, 2000, and to the comments of the Office Of Ratepayer Advocates (ORA) dated August 21, 2000. SDG&E responded that the protest of ALA SD/IC is not well founded, and that the new curtailment rules will have no practical effect on the frequency, size or duration of any curtailment of the power plants. They further respond that the Rule 14 Proposal will protect noncore commercial and industrial customers, including hospitals, hotels, technology companies, biotech companies and many other businesses from an unnecessary curtailment risk without harming air quality or electricity supply. In response to ORA's comments, SDG&E indicated they were pleased that ORA recognized a need for the limited, expedited relief they seek. However, SDG&E does not believe that investigations of the sort recommended by ORA are necessary at this time.
COMMENTS BY OTHER PARTIES
The Energy Division received four letters in support of A.L.1210-G from Paul Ecke Ranch and the Four Seasons Resort dated August 7, 2000 and Tri-City Medical Center and Angelica Health Care dated August 8, 2000. All supporting entities are noncore commercial and industrial customers who would benefit from the proposed rule change by being relieved of curtailment. In addition, the Office of Ratepayer Advocates (ORA) submitted a response to A.L.1210-G wherein they state that they do not oppose SDG&E's request to temporarily revise Gas Rule 14. However, ORA recommends that approval of the request be contingent on a further investigation of the matter by the Commission to determine the underlying reasons behind the need for summer gas curtailment. ORA recommends that the Commission order an investigation to determine the reason for the shortage of gas transmission capacity and to decide whether the gas curtailment rules should be modified on a permanent basis.
ORA questions why the gas transportation system is insufficient to serve the gas requirements of the system. South Bay and Encina are not new facilities and service to Rosarito has been contemplated since the early 1990's. ORA contends that although the total effects of electric restructuring in San Diego may not have been known, SDG&E presumably evaluated and assessed the impacts of electric demand on its gas transportation system, and the need for system enhancements or expansions. SDG&E was fully aware, or should have been, that as a result of the increased electric demand, more gas transportation capacity may be required. ORA states that SDG&E began construction of a phased expansion of its gas transportation system in the 1990's, which is referred to as Project 2000. The Commission has provided for funding of this project in SDG&E's general rate case and related cost of service proceedings according to ORA. Additionally, the costs of this project have been incorporated into the resource plans used to develop the Long Run Marginal Cost (LRMC) calculations for cost allocation purposes.
ORA states that they find it difficult to fathom that pipeline capacity in the SDG&E service territory is insufficient to serve demand. They take issue with SDG&E's allegation that Project 2000 was designed to meet core peak requirements. ORA states that proper system expansion and enhancements would have contemplated meeting all system requirements, especially given the willingness and commitment of SDG&E to provide firm gas transportation service to the new incremental load at the Rosarito facility. ORA calls for a Commission investigation of the impact the Rosarito facility has on the gas transportation system.
In addition, ORA calls for an investigation into the relationship, if any, of the planning of SDG&E's gas transportation system to the recent proposal of Sempra Energy and PG&E Corporation to build a $230 million natural gas pipeline from the California/Arizona border to the pipeline interconnection which serves the Rosarito facility. ORA questions whether the plans of an affiliate of SDG&E adversely impacted or undermined the long-term planning and design of the SDG&E gas transportation system. Another item for investigation, according to ORA, is the July 14, 2000 announcement of SoCalGas and SDG&E offering firm transportation service on their transmission systems to all customers within SDG&E's territory. ORA questions what authorization these utilities have to provide such service, and what the impact of such an offer is on existing, noncore customers' service if they opt not to take part in this unofficial open season.
Lastly, ORA questions why it is only now that SDG&E is reacting to potential curtailments due to an increase in gas transportation demand. SDG&E should have realized that the "interruptible buffer" was eliminated when Encina and South Bay elected firm service in April, 2000. ORA indicates that SDG&E should have recognized that the new owners of the Power Plants would not have the incentive to efficiently manage the gas system and minimize the potential for curtailments. ORA recommends that the Commission investigate whether permanent modifications to Rule 14 are necessary, given that the likelihood for future curtailments will remain due to the ongoing demand on a firm basis by Encina, South Bay and Rosarito.
