PG&E Pressures Regulators to Minimize Procurement Risk

With Pacific Gas & Electric poised to issue a draft solicitation for power contracts next month, the utility is turning up the heat on policy makers to provide financial assurances to minimize risks for the deals. PG&E?s move is one of an array of proposals surfacing during California Public Utilities Commission hearings on power procurement, which began last week and run through September 24. Putting off approval of debt equivalency is ?imperiling? PG&E?s efforts to secure power contracts, Ed Kurz, PG&E attorney, intimated, invoking support by the Office of Ratepayer Advocates for the utility?s quest for new power supplies. ORA, however, disagreed with PG&E?s quest for debt equivalency in this case. Scott Logan, ORA analyst, said the accounting treatment should be handled in cost-of-capital cases. Debt equivalency is the term for an investment premium requested by utilities. When a utility enters into a contract for power with an outside provider, the pact goes on the utility?s books as a debt instead of an asset. Conversely, if a utility builds a power plant, it becomes an asset on the books. Because power contracts affect utilities? debt-to-equity ratios, credit agencies can derate them, and thus the cost of borrowing money can increase. Other issues that have arisen so far in hearings include climate change, a capacity market, renewables, and turnkey project ownership. In line with the commission?s new policy focus on how power plants affect climate change, PG&E said it will consider greenhouse gas emissions as part of its bid evaluation. The Union of Concerned Scientists wants PG&E to examine carbon emission costs of each bid and compare bids to alternative resources, especially energy efficiency and renewables. However, PG&E did not indicate how much weight it will give greenhouse emissions when it reviews bids. The lack of a ?vibrant? market for carbon costs makes these calculations challenging, according to Wendy Pulling, PG&E director of environmental policy. Pulling admitted that PG&E?s earlier testimony underestimated private utility CO2 emissions. Overall, PG&E believes greenhouse gases will be regulated in the next 10 years, Pulling added. Also in play in hearings is the debate over whether the state should adopt a capacity market. A capacity market is envisioned to allow sellers not under contract and those willing to engage in demand response to sell 1 MW tags for capacity available under certain terms. ?If a capacity market is such a good idea, why hasn?t it happened by itself?? asked Mike Florio, The Utility Reform Network senior attorney. In initial filings with the CPUC for long-term procurement plans, only San Diego Gas & Electric spelled out the role of renewables in long-term procurement plans. Other utilities ?say little or nothing? about their green power procurement plans or the long-term transmission planning needed to facilitate that procurement, according to the Center for Energy Efficiency and Renewable Technologies. Utility ownership issues surfaced regarding PG&E?s plan to acquire 50 percent of new generation through contracts and 50 percent on its own. The Independent Energy Producers originally endorsed the approach in testimony but in hearings called that stance all ?a big typo,? said Steven Kelly, IEP policy director. He added that support of turnkey projects is not the group?s policy. IEP still supports the CPUC?s ban on affiliate transactions, stressed Kelly. The language was removed to make the paragraph read more clearly, he asserted. Judge Carol Brown said she found it ?curious? that IEP changed language in its testimony on turnkey projects and affiliate transactions.

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PG&E Pressures Regulators to Minimize Procurement Risk

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