PG&E Seeks Half New Generation Ownership

Amid growing concern utilities are short-circuiting the state’s competitive power procurement system to increase their ownership of power plants, Pacific Gas & Electric revealed October 9 that it hopes to own 50 percent of the new power generating capacity it needs. However, the utility has met stiff opposition and was virtually forced to cancel its proposed 560 MW gas-fired Tesla power plant recently. PG&E’s ownership “strategy” stems from its bad experience during the state energy crisis of 2000-01, Fong Wan, utility vice president, told the California Energy Commission during a meeting on its draft 2008 Integrated Energy Policy Report update. Wan revealed the utility’s ownership goal in response to questioning by commission chair Jackie Pfannenstiel and commissioner Jeff Byron remarking that utilities, such as PG&E, have been circumventing the power procurement process to get back into the generating business. “It really chills the forward market for procurement,” said Byron. “We’re trying to get this procurement process right and transparent for customers so they’re sure it’s in their best interests. We’re trying to get it right so these plants can be built.” However, Wan disputed Byron. “We respectfully disagree that we’ve circumvented the process,” he said. Controversy over the power purchasing process became acute last summer when PG&E moved to build the Tesla facility instead of buying power from independent generators. After weighing the matter, the CPUC late last month proposed disapproving the utility’s plan, leading the company to pull the plug on the project. A CPUC administrative law judge said that new power projects that provide electricity to utilities must go through a competitive bidding process. “We have cancelled the equipment order on Tesla and we are not going forward,” said Wan. However, the PG&E executive maintained that the project would have been a good economic bargain for its customers. Wan noted that during the power crisis the utility was dependent upon buying power from independent suppliers at high prices it could not pass on to its customers. The resulting squeeze forced the utility into bankruptcy. Yesterday’s discussion played out against the backdrop of a CEC recommendation in the draft 2008 IEPR update that the CPUC assert more control over the utility power procurement process. The report outlines recommendations to other agencies and the Legislature on what is needed to make sure California’s energy system meets public needs in a reliable, affordable, and environmentally-sound manner. The CPUC already must approve any procurement deal before it can go forward. The public utilities commission also has a committee that reviews in secrecy the proposals utilities receive in response to their requests for offers of new power. The Energy Commission states that process needs to be improved to meet a number of state goals, including moving to higher levels of renewable energy, cutting greenhouse gases, improving the environment, and keeping the cost of power down. “It all comes back to this procurement issue,” said Byron. Accordingly, the draft energy policy report update recommends that the CPUC take over ranking project proposals submitted to utilities to provide new power using a “fully transparent method.” However, PG&E and Southern California Edison expressed skepticism about the recommendation. “We don’t really have skin in the game here,” said Carl Silsbee, Southern California Edison regulatory economics manager. Silsbee said the CPUC already exercises substantial oversight over utility procurement. He also questioned a recommendation in the draft document calling for a feed-in tariff for renewable energy. Wan did too. Pfannenstiel explained that the concept is to require utilities to buy renewable energy from project developers at a cost based on the technology they use to make power, such as wind, solar, or biomass. She said that such a tariff likely would improve the financing prospects for renewable energy project developers and propel the state toward its goal of 20 percent green energy by 2010 and 33 percent by 2020. Commissioners chided the utilities for being concerned about the cost of renewable energy, but not being concerned about the cost of natural-gas fired electricity. “That’s somewhat disingenuous,” said Pfannenstiel, noting that utilities have no incentives to minimize the cost of gas power, but instead just pass along high prices to their customers. The CEC chair also criticized the CPUC for not attending the meeting on the draft report. Asked to comment on its absence, a CPUC spokesperson said the agency is following development of the report and follows up on any meetings it cannot attend. CEC plans to take public comments on the draft document until October 16 and vote on a final version November 19.

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PG&E Seeks Half New Generation Ownership

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