Sutter Plant Snared in Over-Capacity Debate

By Published On: February 17, 2012

Potential closure of Calpine’s 525 MW Sutter Energy Center hangs in the balance after becoming embroiled in a larger debate at the California Public Utilities Commission about how much idle generating capacity regulators can make ratepayers pay for before it constitutes “crony capitalism.” The argument arose Feb. 16 when the commission discussed a draft resolution to order the state’s investor-owned utilities to negotiate capacity supply contracts with Calpine for the plant. Contracts would run the remainder of this year and total no more than $17.4 million. A commission vote is scheduled for March 8 “We have to decide what this commission stands for,” said CPUC member Mike Florio, “power supplies in competitive markets, or ratepayer-funded welfare for generators.” He warned that if the CPUC effectively bails out Calpine’s Sutter plant, other generators in similar straits would expect help over the next few years as their long-term contracts expire or as they fail to get their one-year capacity contracts renewed. Florio said there are plants with total capacity of over 6,000 MW that either lack long-term power sales contracts for their output or face contract expiration by 2015. Under state policy, capacity contracts--which keep plants on standby for periods of peak demand or times when supplies are short--generally can be entered only one year at a time. In heated debate on the issue, CPUC member Tim Simon countered Florio. He said he’s worried about will happen when the state’s economy starts growing again and demand for power picks up. CPUC president Mike Peevey supported the resolution, saying it would help keep open a highly efficient modern plant with relatively low environmental impacts that can help meet future needs, including integrating greater levels of renewable energy into the state’s grid. Sutter is a combined-cycle plant that is air cooled. Calpine built it in 2001 to serve the Sacramento Municipal Utility District, but its contract expired. The company announced late last year that it plans to close the plant this year unless it can get some sort of contract (Current, Nov. 27, 2011). Commissioners debated the resolution concerning the Calpine plant against the backdrop of what Florio said would be 50 percent over-capacity in the state’s power generation market in the coming decade. State policy requires only a 15-17 percent reserve capacity to maintain system reliability in the event that some plants or transmission lines experience outages. Calling Sutter just “the tip of the iceberg,” Florio maintained the commission needs to deal with the larger picture of how to address the over-capacity rather than provide Calpine special treatment. Peevey pointed to existing proceedings at both the CPUC and at the California Independent System Operator to restructure the state’s capacity market. In addition, the grid operator is pursuing a waiver with Federal Energy Regulatory Commission that could save Sutter, plus open the door for agreements with a number of other plants in California. (see sidebar) Commission member Catherine Sandoval indicated those efforts may be missing the mark, advocating that it’s time for regulators to revisit the long-term power procurement process as well. Currently, only newly constructed generating plants are eligible for long-term procurement contracts with utilities, she noted. In light of the capacity glut, Sandoval voiced support for making existing power plants that meet the most current environmental standards eligible for long-term power purchase agreements too. Peevey agreed that approach might have merit. He observed that the long-term procurement rules were set up after the state’s 2000-01 power crisis to incentivize construction of new plants in a tight generation market, plus give those who could obtain contracts the ability to finance their projects. The commission debated the issue after several elected and civic leaders testified, calling the plant’s ongoing operation critical to the Yuba City-area economy. The plant contributes $2.6 million/year in property taxes, has a $3 million/year payroll, plus supports 100 local contractors, said Yuba City mayor John Dukes. Sutter County Board of Supervisors chair Larry Munger added that Calpine has provided $2.5 million to improve the levees that guard against floods in area, which lies on the Sacramento Valley plain. Before the CPUC expects to vote March 8, commissioners noted that Calpine has the chance to bid in response to Pacific Gas & Electric’s call for standby power this coming summer. “If Calpine doesn’t participate it would influence my viewpoint,” said Sandoval.

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