| Independently Powered Energy News

By Tom Bottorff, Pacific Gas & Electric Co.s senior vice president of regulatory relations Editor’s Note: PG&E responds to last week’s guest editorial by the Independent Energy Producers policy director Steven Kelly. That column, “Alarming Reversal,” criticized PG&E for pushing an accelerating approval of a utility-owned power project, Tesla, and reiterated a call to the California Public Utilities Commission to investigate investor-owned utility procurement practices. The Independent Energy Producers Association has been on a campaign of late to discredit Pacific Gas & Electric’s power procurement practices. It accuses us of bias in favor of utility-owned generation, and, astonishingly, criticizes us for working to ensure reliable electric service to our customers. There are several substantive issues in the Independent Energy Producer’s editorial that need to be addressed. Contrary to the independent producers’ assertions, PG&E-owned generation does not dominate the market. The northern California market today consists of 24,700 MW of generation. Independent power generators own 64.5 percent of these resources. PG&E’s share of generation is 25 percent. Municipal utilities own 10.5 percent. PG&E has committed to or proposed approximately 8,000 MW of new generation in northern California since 2004, including renewables, non-utility generation, and utility-owned generation. Of this amount, PG&E’s owned projects--Colusa, Humboldt Bay, Gateway, and the proposed Tesla Generation Station--would constitute approximately 1,900 MW, or 24 percent of the total new generation in the northern half of the state. The remaining 76 percent of new generation is to be provided by independent generators under power purchase agreements with PG&E. This hardly approaches the re-monopolization of the market that IEP suggests. The independent producers imply that PG&E has failed to comply with the California Public Utilities Commission’s procurement rules with respect to its development of these utility-owned generation projects. The fact is that two of these utility-owned projects, Humboldt and Colusa, emerged as winning bidders from the very type of competitive procurement process that IEP advocates. They were bid as “turn key” projects into PG&E’s 2004 long-term Request for Offers by third party developers. They were selected because they were the lowest cost alternatives. This was confirmed by the CPUC after a hearing process in which the commission concluded: “PG&E conducted an open, competitive and fair solicitation and contract selection process.” (Decision 06-11-048, page 7.) The third utility-owned project, Gateway, resulted from a highly favorable settlement of PG&E’s refund claims on behalf of customers against Mirant. The generator is an IEP member, which was then in bankruptcy. Mirant owed PG&E’s customers tens of millions of dollars, and was unable to complete the plant on its own. PG&E has proposed to proceed with the 560 MW Tesla Generating Station to address a serious 900 MW resource shortfall that will occur, according to the CPUC’s own adopted forecasts, by the summer of 2012. The threat to reliability will be even greater by the summer of 2013. This shortfall has been caused by the failure of independent power producers to fulfill their contracts. Two of the winning projects from PG&E’s 2004 solicitation were terminated by the developers in 2008. A third project has been delayed by the developer for two years, with a request for an amended contract and increased price. Utilities have an obligation to their customers to ensure reliable electric service. This includes proposing replacement generation for failed projects. The commission has expressly sanctioned utility-owned generation when necessary to ensure reliability. PG&E is living up to this obligation by proposing the most cost-effective and viable source of replacement generation that can be on-line in time to meet the summer 2012 reliability need. In order to address this summer 2012 reliability risk, PG&E looked at all of its options, including a potential fast track Request For Offers, as recommended by IEP. A request for new capacity by summer 2012 is infeasible given the timeframe for 1) conducting the solicitation, 2) obtaining CPUC approval, 3) securing development permits, 4) obtaining transmission interconnection priority under the California Independent System Operator’s new procedures, and 5) securing long-lead time equipment in a time of market scarcity. PG&E pursued the most viable and cost-effective alternatives that could be on-line in 2012. We concluded that the most prudent course would be to propose that the CPUC approve two sources of replacement generation--one utility-owned, and one owned by a member of the IEP. The 560 MW Tesla Generating Station has already been permitted by the California Energy Commission and has established its interconnection priority. The proposed amendment to the 601 MW Russell City Energy Center power purchase agreement, if approved by the CPUC, would allow the project, which has encountered permitting delays and cost increases, to achieve commercial operations to meet the summer 2012 reliability need. IEP and other market participants have repeatedly urged the commission to modify its hybrid market policy, which allows both utilities and independent power producers to compete against each other in the development and operation of generating resources. The commission in the recent past rejected these attempts of generators to corner the market, recognizing that utilities serve an important reliability function and that it would be irresponsible to repeat past mistakes and rely exclusively on the market to ensure reliability. PG&E has no intention of dominating the generation market, but it will take all necessary steps to keep the lights on for our customers. Edited By:

No Result