Munis Press CEC to Ease Draft Coal Import Rules

Municipal utilities are insisting that the California Energy Commission loosen its proposed rule on coal-fired power plant investments. The rule would prohibit the state's public power agencies from making investments that extend the life of a coal-fired plant by more than five years - including those involving only maintenance work. The commission included the language in draft rules intended to enforce SB 1368. That law limits greenhouse gas emissions from baseload power plants serving California. A key issue before the CEC - which sets the rules for munis - is what constitutes a contract or investment that would stretch the service of a coal plant by five years or longer. "Forcing currently operating plants and units to shut down . . . can lead to generation shortages," warned the California Municipal Utilities Association. The industry group invoked a glitch in the plans that determine whether maintenance or repair to a coal-fired plant is considered to extend the life of the plant. The association argued in comments filed last week that investing in routine maintenance in plants in which they own shares differs from new ownership investments or power-purchase agreements of five years or longer. An immediate case in point involves a decision facing the M-S-R Public Power Agency, Steven Gross, agency attorney, stated in February 2 comments sent to the CEC. M-S-R includes the Modesto Irrigation District and the cities of Santa Clara and Redding. The agency owns a 28.8 percent share of the San Juan Generation Station, a 1,640 MW coal plant near Farmington, New Mexico. Its owners need to replace the turbine blades. The blades have eroded and reduce the plant's efficiency, according to Gross. Installing new blades would increase the output of the plant by 4 percent and commensurately cut greenhouse gas emissions. Originally, the work was slated for 2007 in conjunction with installation of mandated air pollution control equipment. However, because of the time it took to obtain a regulatory determination on the turbine blade replacement by the federal Environmental Protection Agency, the owners now plan to carry out the work in 2009. Under the draft rules, according to Gross, M-S-R's participation in the project could constitute a regulatory violation. Thus, the public power agency would have to either veto the installation or divest its interest in the plant prematurely at a potential loss of hundreds of millions of dollars on outstanding bonds due to mature in 2023. That is because, he said, M-S-R believes it could get only $100 million for its share of the plant, though it still owes $400 million in principle on the bonds it used to finance the plant. However, the Natural Resources Defense Council and the Union of Concerned Scientists said that allowing such investments, even if they improved plant efficiency, "does not seem to be consistent with SB 1368." The organizations asked for a tighter standard that would ban such investments because they believe that lawmakers intended to cover any expenditure that could lengthen the service life of a plant by five years or more. The California Public Utilities Commission adopted rules last month to implement SB 1368 for the state's investor-owned utilities (Circuit, Jan. 26, 2007). Emissions from power supplies feeding California are not to exceed those from a combined-cycle gas-fired plant. The Energy Commission plans to evaluate the munis' request and other feedback before releasing its final report on the proposed rules, according to Claudia Chandler, agency spokesperson. Originally, the commission had hoped to finish developing the rules in January to allow the Office of Administrative Law to review them before they take effect by the law's July 1 deadline. Now the CEC aims to send them to the state office by February 20, an agency spokesperson said. The Energy Commission hopes to adopt the regulations in May. - William J. Kelly

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Munis Press CEC to Ease Draft Coal Import Rules

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