Calif. Draft Would Mandate New Nonbypassable Charge

A California PUC comment (draft) resolution would direct Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric to negotiate to enter into a contract with Calpine's Sutter Energy Center to end no later than December 31, 2012, and would adopt a nonbypassable charge to pay for the cost of the contract.

"The purpose of this order is to keep the Sutter plant online in 2012, enabling further analysis of the impacts of current and proposed dynamic transfer tariff changes at the CAISO [California ISO]," the comment resolution says.

Calpine had filed a notice stating that it was planning on retiring the plant in 2012 due to the lack of a resource adequacy contract.

The CAISO determined that the Sutter plant is needed for operation flexibility in 2017 and beyond in a high load scenario. While CAISO asked the Federal Energy Regulatory Commission for a tariff waiver that would enable the Sutter plant to receive a Capacity Procurement Mechanism [CPM] designation, a ruling on a waiver filing associated with the request is not expected until June 2012 at the earliest.

Also of note is that Calpine's Sutter plant is connected to the CAISO via a pseudo-tie and has been utilized as a fairly unique dynamic transfer pilot plant. The comment resolution notes that pseudo-ties and dynamic transfers are one way that may provide additional flexibility and/or lower costs in integrating renewable resources by accessing resources located outside of the CAISO's transmission footprint.

"[M]aintaining facilities that have pseudo-tie agreements is beneficial to understanding the role these agreements may play in California's and other states' energy futures. As one of three resources, and the largest resource, currently connected by a pseudo-tie agreement, the Sutter plant could provide valuable information to the CAISO and stakeholders about the impact of these tariff changes," the draft states.

While the PUC's R.10-05-006 proceeding has not identified a need for new generation to meet the planning reserve margin through at least 2020, a final decision in the proceeding has not yet been issued.

"We believe there is a need for more information on the strengths, weaknesses and capabilities of connecting to the grid through a pseudo-tie using the CAISO's dynamic transfer tariff. Therefore we believe there is a need for the continued operation of the Sutter plant," the comment resolution states.

"Pending further renewable integration analysis in R.10-05-006, it is only prudent to execute a contract through the end of 2012. Therefore, the IOUs should contract with the Sutter plant in order to retain this dynamically transferred resource. The contract should be executed in a manner that minimizes the cost to ratepayers. It is expected that in the contract the costs should be significantly below what would be paid if the Sutter plant were subject to the CPM," the draft adds.

If a contract is negotiated, the utilities shall via advice letter, "seek Commission approval of the contract and tariff sheets to implement the contract costs as a non-bypassable charge." The comment resolution does not address allocation of capacity under the contract.