Long Yardage Sought for Long-Term Power Procurement

By Published On: April 27, 2012

In the wake of the California Public Utilities Commission’s April 19 decision on utility long-term power procurement, all eyes are trained ahead as regulators try to resolve the state’s need for new fossil-fueled power plants. Determining this “core issue” related to future power deals will be “challenging,” admitted commission president Mike Peevey before the commission approved a partial decision April 19. There is the double whammy of state policies requiring 33 percent renewable energy by 2020 and phasing out of once-through cooling at coastal power plants, which provide 40 percent of state generation capacity. Throughout the procurement proceeding, parties voiced deep disagreements on whether new fossil fuel power plants really are needed over the next eight years to achieve the policy objectives. Environmentalists generally said no, while utilities generally said yes. Meanwhile, commission member Mark Ferron lamented that analyses to date by the California Independent System Operator have proven largely inconclusive. “It’s unfortunate we don’t have a clear answer,” he said, calling for “a conclusive demonstration of need” before the commission approves more utility contracts with new fossil fuel plants. The discussion highlighted that the commission’s April 19 action approving a settlement among the squabbling parties was as much of a non-decision as it was a decision on the issue. “The proposed settlement is, in essence, a punt,” the commission decision stated. “The settling parties have agreed to defer determination of the core issue in this proceeding: the utilities’ future need for additional generation.” Now the commission is making another attempt at answering that question in a new proceeding headed by commissioner Mike Florio. The goal is to determine “the overall long-term need for new system and local reliability resources, including adoption of system resource plans and assessment of long-term local area reliability needs,” the commission wrote March 22 in an order opening the proceeding. Once the plans are in hand, the commission will be better positioned to make decisions about utility procurement plans, the CPUC elaborated. Commissioners hope to make a decision on actual need by November with utilities filing updated procurement plans early next year. Meanwhile the commission made headway on some procurement issues last week, including: -Setting ground rules for future contracts for power from once-through cooled coastal power plants. Under the rules, the power purchase agreements are limited such that they have to expire before the once-through cooling phase-out deadlines for the plants, unless the parties can show the agreements facilitate compliance with the State Water Resources Control Board’s requirements. -Protecting ratepayers when utilities purchase greenhouse gas emissions rights and offsets under the state’s carbon cap-and-trade program. Until experience is gained, the decision prohibits trade in derivative instruments associated with the state’s carbon market. The decision also prevents utilities from trading greenhouse gas credits on a bilateral basis, forcing them to be traded in broader markets. The aim is to help assure that the broader markets have adequate liquidity to succeed. In addition, sellers of offsets to utilities have to assure they will assume the financial liability if their credits later are invalidated by the state, plus post collateral to cover any potential invalidation. -Clarifying that utility-owned generation projects can go forward only under limited circumstances. The decision said that utility-owned projects cannot be considered for meeting long-term power needs until a utility request for offers has failed to produce any viable alternatives. Then the commission plans to assess any potential utility-owned generation plant with an eye toward making sure is saves ratepayers money compared to other alternatives.

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