Over-Capacity Concerns Face New CPUC Members

California Current (2011-01-28) William J. Kelly

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New California Public Utilities Commission members face growing concern by consumer advocates that regulators have authorized too many new power plants over the last decade. They, and proponents of distributed renewable generation, fear that without new scrutiny by regulators, excess capacity will drive up utility bills.

The immediate lightning rod for their concern is the CPUC’s decision last month approving Pacific Gas & Electric’s purchase at ratepayer expense of the 624 MW Oakley Generating Station in Contra Costa County. Consumer advocates, including the Division of Ratepayer Advocates on Jan. 19, asked the commission to reconsider its Dec. 16 decision. Then, regulators allowed PG&E to proceed with the fossil-fueled power plant, as long as the costs were not imposed on ratepayers until 2016. The matter is likely to be one of the first questions Governor Jerry Brown’s new CPUC appointees face. Despite a limited demand outlook, the commission approved spending $1.5 billion to build Oakley and operate it for the first eight years at its final meeting last year. That came on the heels of a California Energy Commission permit allowing construction of the 980 MW Marsh Landing plant in Antioch by Mirant. Now, the Energy Commission is considering a permit for the 200 MW Mariposa peaker plant planned near Livermore.

All the plants are in PG&E territory.

Approvals of Oakley and plans to build other natural gas-fired plants come as PG&E last year reached a reserve margin of 38.3 percent, according to independent engineer Bill Powers. Regulators require a 15 to 17 percent reserve margin.

Powers maintains that fossil-fuel plant overcapacity is growing—not just in PG&E territory—and coming at a time when the state’s investor-owned utilities have entered massive numbers of power purchase agreements for renewable energy

The Utility Reform Network spokesperson Mindy Spatt said the ratepayer group hopes “a new commission will refuse to circumvent the normal approval process and require proof that a plant is necessary.” She called the December 2010 decision to approve Oakley “rife with procedural errors and unjustified customer costs, leaving the impression that the commission just can’t say no.”

In its petition for rehearing, TURN complained that to justify the need for the plant, the commission artificially extended the timeframe for its “needs” analysis beyond the customary horizon. (A “needs” analysis is a procedure by state regulators to determine future energy requirements.)

PG&E spokesperson Brian Swanson countered the commission’s approval was wise because the demand for power will grow looking out past five years. Swanson also argued that Oakley—and other new plants like it—can help allow closure of old inefficient and environmentally harmful power plants. For instance, Swanson pointed to PG&E’s shutdown last year of old fossil fuel units in Humboldt County when a replacement plant opened. He noted too that the utility closed its Hunter’s Point plant in San Francisco.

Concern about over capacity comes as the California Energy Commission is seeking to establish what spokesperson Susanne Garfield calls “a re-invigorated” “needs assessment” for the state’s power system (see related story below.)

CEC data show PG&E expects rather flat demand growth for years to come due to the economic downturn. Even if the utility sees peak demand grow by 1.3 percent a year, Powers estimates the northern California utility’s peak load is unlikely to return to its level of 2006—when the state experienced a summer heat storm—until at least 2016 or 2017. PG&E’s peak demand hit 22,650 MW during the exceptionally hot weather event in 2006. Last year its peak load was 21,180 MW.

A Division of Ratepayer Advocates’ report issued late last year shows that if all the renewable projects involved in power purchase agreements are built on schedule the state would be able to get 45 percent of its energy from renewable resources by 2016, more than the 33 percent required by 2020. While it’s doubtful all of them will be built, Powers and others maintain that renewable plants should be seen—at least in part—as replacements for fossil fuel power plants.

Instead, utilities see them as creating the need to build new fossil fuel plants. The California Independent System Operator also supports new gas-fired plants as a backup for renewable energy. Swanson said that new plants like Oakley are needed to integrate renewable power into the grid as backups when the wind doesn’t blow and the sun doesn’t shine. He said that Oakley and other newer plants can more quickly change their output to respond to changes in power production from intermittent wind and solar power.

They also use less water because they generally are dry-cooled, as opposed to using ocean or river water for cooling turbines, the spokesperson added.

CPUC Finds Renewable Energy Use Climbs

Renewable energy use is inching up, according to a California Public Utilities Commission analysis released Jan. 25. In 2009, it represented 15.4 percent of the state’s investor-owned utility electricity load, up from 13 percent in 2008.

In a report to the Legislature, regulators reported 653 MW of new renewable capacity came on line last year, more than in any year since the law mandating a 20 percent renewable portfolio took effect in 2002.

Among utilities, Southern California Edison led the league with 17.4 percent renewable energy in 2009. That compares to 14.4 percent at Pacific Gas & Electric and 10.5 percent at San Diego Gas & Electric. Increased use of solar in utility distribution system areas is helping fuel the increase, the CPUC noted. The projects are relatively quick to permit and install compared to large-scale renewable energy projects that need long distance transmission.

Looking further ahead, state regulations under California’s climate protection law, AB 32, call for 33 percent renewable power by 2020.

The CPUC noted that utilities have more power purchase agreements in place than needed to meet the 33 percent renewable energy target. The commission report acknowledges that many won’t materialize “due to contract failure.” Some of the projects have only about a one-in-two chance of ever being built, according to the commission, due to uncertainties, such as financing.

The state renewables portfolio law calls for utilities to hit 20 percent in 2010, but the CPUC allowed non-performing contracts to count for a limited time. The utilities are expected to report their 2010 levels of renewable power by March 1 but clearly will miss the target, the report noted.

Solar Initiative Funds Lag Goal

The California Solar Initiative program to date is responsible for 761 MW of solar rooftops. Last year, investor-owned utilities paid out $231 million of incentives to help install 153 MW of solar rooftops, according to California Public Utilities Commission data.

With applications pending approval, regulators and utilities project that the program soon will have supported installation of 1,332 MW. That would leave the CSI with only $193 million in incentive money left out of the original $1.748 billion. That’s about 11 percent of the total money with still about 24 percent of the capacity goal remaining.

“We’re about 50 percent through the program in terms of capacity goals,” said Garen Grigoryan, Pacific Gas & Electric solar business analyst Jan. 26. He cited both installed capacity and approved incentive applications for pending installations.

The goal of the CSI subsidy program is to put 1,750 MW of photovoltaic rooftops on homes and businesses by 2016.