PG&E Calls on QFs Despite Low Pay

By Published On: January 13, 2006

Pacific Gas & Electric called on more than a dozen small power plants to increase their supplies of electricity to the utility this winter. PG&E claims that its contracts with the power plants could save consumers between $15 million and $55 million. However, one power plant owner, Ridgewood, said following PG&E’s direction would cause it to “go broke” because the cost of gas to fuel the plant outweighs the utility’s payments. Ridgewood instead shut down plants and sold its gas contracts. The rest of the qualifying facilities (QFs) that PG&E asked to run beyond their contract parameters beginning in early December have done so, according to PG&E spokesperson Jon Tremayne. “Every kilowatt-hour that we don’t have to go out and purchase saves customers money.” He estimated – depending on the price of natural gas to fuel replacement power – that customers are saving between $15 million and $55 million with these QFs running longer hours. At January’s gas prices, he noted, the savings are at the lower end of the scale. For a 5-6 MW plant, owners have been receiving capacity payments of more than $100,000 a month for the last 15 years, according to Tremayne. Capacity payments are intended to keep the plants available. On top of those payments, they receive money for delivered megawatts. The price paid for energy is extremely low for these contracts. In these cases, the energy price was fixed during the 2000-01 energy crisis at $53.70/MWh. In contrast, this month’s energy prices under other supply contracts, known as the short-run avoided-cost price, is twice that – at $116/MWh for PG&E territory. The short-run avoided-cost price takes into consideration the cost of natural gas to fuel most plants. The $53.70/MWh reflected the cost to generate electricity five years ago, when natural gas prices were less than half of what they are running this year. “This is a death knell for us,” said Bill Short, Ridgewood vice-president, power marketing. Instead of running the plant when natural gas prices for fuel were skyrocketing, Short said, Ridgewood sold its gas contract in October 2005 and shut down its 20 MW of California plants January 1. “We could make more money on the gas” than running the plants, he said, adding, “We essentially pulled a fast one on PG&E, and they probably pulled it back on us.” PG&E did not respond when asked whether it would try to impose sanctions on Ridgewood or any other noncomplying power producer. Other QF owners have complied with PG&E’s request, according to Tremayne. However, the utility would not divulge which owners were sent the communication or what it contained. According to Short, the letter asked owners to run for more hours than under previous agreements, or at different times of the day or additional days of the week. Such changes would not affect all QFs. For instance, GWF Power’s facilities already run at a baseload level, according to a source inside the company. They use petroleum coke for fuel, though, not natural gas. If a power plant is relatively inefficient – that is, it has to burn a lot of fuel to create power, as do Ridgewood’s plants – following PG&E’s requests would violate the Federal Energy Regulatory Commission’s thermal efficiency requirements, according to Short. Ridgewood cited that requirement in its refusal to PG&E, he added.

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