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As gas ban challenges loom, Calif. court overturns natural gas fuel cell limits

A recent ruling overturning a local prohibition on natural gas in fuel cells could be a preview into legal challenges against a wave of municipal building gas bans and electrification codes.

The Superior Court of California on Jan. 9 ruled Santa Clara, Calif., neglected to conduct an environmental and health impact study before implementing the resolution, which banned using non-renewable fuels in distributed power generation systems. Bloom Energy argued the resolution would increase pollution by banning future sales of its low-emissions, gas-powered fuel cells, leaving city residents reliant on diesel generators and gas-fired power plants.

The decision could have implications for legal challenges to ordinances prohibiting or discouraging gas use in new buildings passed by about two dozen local California governments, Raymond James Analyst Pavel Molchanov said in a Jan. 17 research note.

Like many of the building measures, the Santa Clara resolution would have taken immediate effect, rather than setting a longer-term goal in line with the state's 100% clean power target for 2045, Molchanov noted. However, unlike the resolution, several of the building ordinances have approval from the California Energy Commission, presumably putting them on firmer legal ground, he said.

The California Restaurant Association has made claims similar to Bloom's in a lawsuit over a pioneering building gas ban in Berkeley, Calif., saying the ban violated federal and state law and bypassed required procedures. The association, however, filed its suit in federal court, which Berkeley lawyers claim lacks jurisdiction.

"It is too early to say whether any of these ordinances will ultimately be invalidated," Molchanov said in a Jan. 17 research note. "But, at a minimum, the defeat of Santa Clara's [resolution] will place some guideposts over what municipalities can and cannot do in the realm of energy policy."

Bloom, however, is ready to call the Santa Clara ruling a victory against blanket proposed bans.

SNL Image

Bloom Energy fuel cells use natural gas and biogas to fuel an electrochemical process that generates on-site power for customers seeking low-emissions energy.

Source: AP Images

Josh Richman, Bloom's vice president of business development and policy, called the ruling "a cautionary tale to policymakers" seeking to implement ordinances under the banner of climate change mitigation. The company said it was a "seminal moment" and "defining legal victory."

"Environmental policy should actually work to reduce harmful environmental impacts, serve the public good, and be carefully crafted in consultation with experts. But in this case, officials in the City of Santa Clara made the inaccurate claim that their policy was good for the environment and would contribute to reduced emissions," Richman said in a Jan. 17 press release.

Judge Thomas Kuhnle found Santa Clara provided enough evidence to show the resolution would not increase carbon dioxide emissions. However, he said the city failed to show it would not increase nitrogen oxide and sulfur oxide emissions and diesel generator use. The resolution therefore was not exempt from environmental review under the California Environmental Quality Act and cannot stand.

The resolution would have applied to distributed power users who rely on the grid operated by Silicon Valley Power, Santa Clara's municipal utility, for backup power. Santa Clara framed the resolution as part of its effort to reduce greenhouse gas emissions and mitigate climate change. Bloom said city officials sought to protect Silicon Valley Power's electric power sales by sidelining fuel cells.