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By Steven Kelly, Independent Energy Producers policy director Editor’s note: Last week, the Independent Energy Producers filed a protest of PG&E’s application for expedited approval of its 560 MW, combined cycle Tesla Facility. It also filed at the California Public Utilities Commission a motion to dismiss the application and a motion calling for an investigation of the utilities’ procurement practices over the past few years, both renewable and fossil fuel. Something is seriously wrong with how California is procuring generation to meet its reliability needs and to address global warming. Since 1976, independent energy producers have identified generation opportunities, financed projects, and built and operated advanced and innovative generation technologies. These independent projects provided competitive pressure on investor-owned utilities’ generation model even before deregulation was envisioned. The latter led to significant cost overruns, higher rates, and a weakening of the financial strength of the investor-owned utilities. Recently, however, this competitive market model has inexplicitly run into problems with the utilities’ procurement practices. Somehow, seasoned, experienced, well-financed independent power developers can’t quite “get to the finish line” in developing new projects. This problem is particularly pronounced in the Pacific Gas & Electric service territory, where it proposes to build Tesla, its fourth utility-owned plant of late. If approved, PG&E will have succeeded in squeezing 67 percent of all the new generation out of the competitive market and into a vertically integrated utility. So much for the “hybrid market.” This alarming reversal of progress requires a response. The Independent Energy Producers made a motion to dismiss PG&E’s request for an expedited review last week. We believe PG&E’s Tesla application is totally inconsistent, both in language and in spirit, with the commission’s procurement policy. The commission’s procurement policy, articulated last December in Decision 07-12-052, is very direct: “We want to make it clear that we continue to believe in a ‘competitive market first’ approach. As such we believe that all long-term procurement should occur via competitive procurements, rather than through preemptive actions by the investor-owned utility, except in truly extraordinary circumstances.” The Tesla application is the fourth in a long line of investor-owned utility applications since last December policy. It, like the others, seeks approval of a utility-owned-generation project outside of a competitive procurement process. In addition to being an unwarranted and unwelcome exception to the commission’s policy, these recurring applications are a tremendous drain on commission resources. There is no valid reason to compel stakeholders, nor commission staff, to devote considerable time and resources to this latest PG&E excursion, given regulators’ rulings governing procurement and because so many other critical policy and procurement matters remain on the commission’s plate. The commission must put its foot down. Second, the procurement practices leave a lot to be desired. One would think, given renewable goals, greenhouse gas emission goals, and reliability objectives, the key procurement objective would be to obtain, at least-cost, resources that actually can be built and interconnected in a timely manner. IEP thinks that “least-cost/best-fit” means just that. However, the utilities’ procurement practices could be summed-up as follows: -Conduct an RFO to see what’s “out there;” -Create a “short-list” of low-bid projects, irrespective of whether the project is likely to be interconnected to the grid in a timely manner; -Sign up projects as quickly as possible that are not interesting from an outright utility ownership perspective to place on the annual report (renewables are best!)--again, irrespective of whether the prospects for physical interconnection are high or not--thereby hiding from consumers and the Commission the true cost of interconnecting new resources; -Negotiate ad nauseum with projects that seem attractive from a utility ownership perspective, thereby creating “step-in” opportunities if desired (think Colusa, Tesla); -Seek commission approval for non-utility-owned generation applications under normal 12-18 month reviews, thereby increasing their likelihood for failure due to time lag; and, -Jam the commission with the choice of approving utility-owned generation applications or risk undermining grid reliability. Force the decision in an expedited manner (typically 6 months or less). IEP seeks a halt to this cycle, urging identification of what is really going on in the procurement world. And, most importantly, we urged the commission to foster real reforms with regards to procurement practices that will ensure that consumers and policymakers get genuinely “best fit” resources at truly the least-cost. Otherwise, California will continue to roil from one unique fleeting opportunity to another, repeatedly placing the commission in an untenable decision-making position, while fostering a self-fulfilling prophesy. That is that businesses with experience building new projects will depart, while the inexperienced, including the utilities, will stay to work on that next annual report cover. Edited by:

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