Many independent owners and operators of recent vintage natural gas-fired power plants in California are worried that they won\u2019t be able to continue to operate profitably and keep their units open in the state without policy changes. The poster child is Calpine\u2019s 578 MW Sutter plant. Sutter is the first modern and efficient natural gas plant that may be on the verge of being shut down. Over the next five years, a number of other independent power plants\u2019 utility contracts representing a few thousand megawatts are set to expire. They face either a lack of a power purchase agreement or the prospect of near-term contract expiration. The Sutter plant near Yuba City--built during the state\u2019s 2000-01 energy crisis--has been operating without a contract since the beginning of 2012. The sun set on its one-year deal to meet state \u201cresource adequacy\u201d requirements at the end of 2011. Calpine has threatened to shut down the plant because of a steep drop in net revenue. The California Independent System Operator is urging that Sutter be kept online on grounds the plant is critical to transmission highway reliability (Current, Nov. 27, 2011). By 2017, there could be up to a 4,600 MW shortage under a worst-case California Independent System Operator scenario. That prospect, according to CAISO, includes closing old water-cooled plants accompanied by a surge in intermittent renewable power supplies fueling the state. Much of the policy rationale for supporting contracts with efficient gas-fired plants is their ability to balance the ebb and flow of wind and solar energy projects, given the predicted growth under California\u2019s 33 percent alternative power mandate. \u201cGas-fired generation plays a critical role in maintaining reliability,\u201d said Stephanie McCorkle, CAISO spokesperson. The relatively young gas-fired plants can ramp up or down quickly in response to the uneven flow of electricity generated by renewables. The only other power resource able to quickly send power into the grid or back it off is seasonally variable hydropower. Shuttering a plant is the least-preferred option for generators. \u201cYou take a huge risk when shutting down,\u201d said Joe Ronan, Calpine senior vice president. That includes not being able to restart for various reasons--ranging from more stringent regulations to legal challenges. The fate of the power plants also involves state and federal regulatory agencies. For instance, to keep Sutter on line, CAISO in a Jan 25 filing to the Federal Energy Regulatory Commission seeks a waiver of what is known as the Capacity Mechanism Tariff to allow the Calpine plant to receive capacity payments. The capacity waiver is \u201cinappropriate at this time,\u201d a Pacific Gas & Electric spokesperson stated. \u201cInstead, a broader, market-wide solution is needed to address how to meet longer-term need for capacity that provides operating flexibility to integrate intermittent renewables into the grid.\u201d Under the current federal tariff, capacity payments are limited to projects needed in 12 months. The grid operator wants FERC to extend the predicted need out five years to 2017, when it anticipates the plant will be essential for grid reliability. That is the year when a number of the power plants along the California coast, which use large quantities of seawater for cooling, are expected to begin going off line. The State Water Resources Control Board in May 2010 voted to phase out once-though water-cooled plants because of significant impacts to the aquatic environment. The policy targets 17 aging fossil-fueled power plants, as well as nuclear plants, which use up to 15 billion gallons of seawater a day. Much of the push for a state policy on power plant water use was tied to a lawsuit decided by the U.S. Supreme Court dealing with section 316 of the federal Clean Water Act (Current, May 7, 2010). Profitability, or the lack thereof, is at the heart of the younger plants\u2019 ability to stay online, according to generators. Also at issue is the revenue disparity between what independent power plant owners reap compared to investor-owned utilities with their built in rate base, which includes double digit rates of return. Over the last few years large energy price swings in the market have been moderated. A drop in energy prices has been good for the consumer, but has seriously affected merchant plant economics, particularly in the absence of any ability to also collect capacity payments. Lack of capacity payments in California--which are separate from energy payments--keeps plants like Sutter from recovering fixed costs, according to Jan Smutny-Jones, Independent Power Producers executive director. There is currently \u201cno way to recover\u201d those costs, which include complying with environmental regulations related to air quality and climate change, he added. Utilities and ratepayer advocates raise concerns about mandated contracts and the impact on rates. CAISO wrote to the California Public Utilities Commission claiming that if the Sutter plant is retired this year \u201cit may not return to commercial operations in future years because under Environmental Protection Agency policy, the plant would likely need to undergo \u2018New Source Review\u2019 and obtain a new air quality permit.\u201d The commission is involved in the matter through its ongoing \u201cresource adequacy,\u201d and investor-owned utilities\u2019 long-term procurement dockets In addition, CPUC staff recently proposed a resolution requiring the three investor-owned utilities to sign bilateral contracts with Calpine this year to keep the Sutter plant running to the end of 2012. Payments are not to exceed $2.95\/month, with the maximum cost set at $29.5 million for the year. \u201cIt is worth noting that the CPUC\u2019s draft resolution has different reasoning than the CAISO\u2019s report for why Sutter is needed,\u201d PG&E stated. It and the other two utilities plan to submit comments on the proposal by Jan. 31. Commission staff presented a resolution calling for a year-long deal to support the CPUC\u2019s push for greater renewable integration and to enable tapping into \u201cflexible\u201d resources to address the intermittency of solar and wind power resources. At the same time, staff noted that \u201cflexible\u201d has yet to be defined by CAISO (see sidebar). The payment is limited to a year while regulators gather more information on the issue.