Nails in Cogen’s Coffin

Despite the California Energy Commission's support of cogeneration power plants, utilities are trying to dispose of or reduce contracts with these relatively small operators on grounds that they are inefficient. Utilities are arguing before the California Public Utilities Commission, in the commission's avoided-cost docket, that the price of cogen contracts is too high. Stakeholder comments were due at press time. "From a basic philosophical prospect, it's insane to let cogen die on the vine," replied Jan Smutny-Jones, Independent Energy Producers executive director. He calls cogen (aka "combined heat and power") an "economic engine" and "successful conservation measure." Pacific Gas & Electric has about 3,000 MW of cogen under contract. Southern California Edison has about an equal amount. Cogeneration involves capturing and using the heat created by a power plant for thermal processes. For instance, excess steam is used in canning tomatoes. PG&E maintains that cogen is no longer appropriate. "A new combined-cycle power plant is still more fuel-efficient than a 1980s cogen plant," said John Laszlo, PG&E manager of electric supply. "You can make steam to send to tomato processing, or you can make steam to run a generator." That is what the utility's new power plants - such as Contra Costa unit 8 - will do, he added. PG&E wants the commission to bring the price of cogen contracts "down to market level," according to Laszlo. Now, the plants get about a 25 percent premium on their electricity, plus a capacity payment that runs between $60 and $200 per kilowatt-year, he added. With current short-run-avoided-cost payments at nearly 9 cents/kWh, PG&E maintains that cogeneration contracts should run about 2 cents lower. Supporters of the technology say that the pricing system is geared to equal what it would cost a utility to produce power on its own. Audrie Krause, spokesperson for Cogen Works, noted that the pricing issue is made difficult by the lack of transparency in contract details. In addition to the basic pricing issue, cogen proponents point to state policy preference for the technology. "Utilities propose a radical departure - ignoring the Energy Action Plan and the CPUC's loading order," stated the Energy Producers and Users Coalition. "Utilities' proposals indicate a complete lack of consideration for thermal energy obligations of cogeneration," the organization added. There is a social reason to keep the cogen contracts, according to the Energy Commission's 2005 Integrated Energy Policy Report. Cogen is "the most efficient and cost-effective form of distributed generation," it notes. The agency adds that California should focus on getting more cogen plants built to contribute another 5,000 MW. That addition could be made if the California Public Utilities Commission gives incentives to utilities to sign up more cogen plants, according to the CEC. "Current state policy must change for California to tap into this potential generation source and retain [cogen's] existing pool of facilities so critical to reliable operation of the state grid," says the commission's report. "For existing facilities, the unwillingness of utilities to renew existing QF contracts has led some operators to remove their [cogen] systems entirely and rely on less efficient boilers. There will be a serious adverse consequence for electric reliability, natural gas demand, and air quality if this trend is allowed to continue," adds the final report. That document is supposed to be the basis for state energy policy in the Legislature and administration. Cogeneration facilities were promulgated under the 1978 federal Public Utility Regulatory Policy Act. Utilities are required to buy energy from those and other qualifying facilities, in addition to the utilities' own power. While PG&E plans to sign up or build more than 2,000 MW of new power plants (see sidebar), the utility has no plans to buy up old cogeneration plants and put them in the utility's rate base, according to Fong Wan, PG&E vice-president of energy procurement.

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Nails in Cogen’s Coffin

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