Calif. Proposed Order Sees No Need for New Generation, Would Refine Utility vs. RFO Rules

A proposed California PUC decision would find that there is no need for additional generation by 2020 at this time, and would refine the process to compare competitive offers to build new generation with utility owned generation.

The proposal comes under System Track I and Rules Track III of the PUC's long-term procurement plan proceeding (Rulemaking 10-05-006).

The proposed decision accepts a settlement which essentially "punts" the issue of the utilities' need for additional electric generation, and defers a determination on the issue.

To the extent there may be any such need for new utility generation, the draft notes that it appears to be primarily driven by the necessity to integrate higher levels of renewable generation onto the system, in anticipation of a 33% renewable portfolio standard (RPS) target. However, a deferral is appropriate as the settling parties state that: "There is general agreement that further analysis is needed before any renewable integration resource need determination is made."

"In looking at the whole record, it would be reasonable to find that there is no need for additional generation by 2020 at this time, and accordingly it is reasonable to defer authorization to procure additional generation based on system and renewable integration need," the draft states.

"We have no specific evidence in the record of this proceeding showing that any combined cycle plants, owned by Calpine or anyone else, are facing a real risk of economic shutdown," the draft adds. "Both the Commission and the CAISO have mechanisms to mitigate the risk of one or more power plants shutting down [with such mechanisms currently addressing the Calpine Sutter plant in separate proceedings]. Even if there is a risk of economic shutdown, we have no record basis to evaluate how much generation could potentially shut down, and whether that would have a significant impact on potential future needs," the proposed order states.

The proposed decision also sees fit to opine that:

"Calpine may be correct that there is some level of market failure in the California electricity markets. The current hybrid market structure is an artifact of the ill-fated restructuring of the California electricity markets under Assembly Bill (AB) 1890 and the subsequent California energy crisis, and it is neither elegant nor efficient. Nevertheless, Calpine has failed to show that the specific problem it is complaining about is as imminent or dire as it claims, and it has failed to show that the specific solution it proposes is reasonable."

The proposed order would also refine the process to compare competitive proposals for generation with new utility-owned generation.

First, the draft would exclude utility-owned generation from competitive Requests for Offers, stating that such presence could chill participation from competitors due to fears of favoritism. Instead, proposals for utility-owned generation would be addressed through the certificate of public convenience and necessity (CPCN) process.

That still leaves the PUC with the decision of evaluating results under the competitive RFO versus a utility CPCN proposal. The draft would first hold that a utility may only seek a CPCN for a utility-owned project when there has been a failed competitive RFO.

The draft would further require that in evaluating utility-owned generation proposals, the Commission should consider all of the project costs, including project development costs.

"If an independent developer wants utility ratepayers to pay for costs, such as planning, design, and project development, it must include those costs in its bid. If a utility did not include those cost in its bid, but recovered their costs in general rate case operating costs, the utility would be getting a ratepayer-funded cross-subsidy of its project that is unavailable to the independent developer, that would result in an unfair comparison of what appear to be project costs," the draft notes.

The proposed order would further provide that the "critical cost parameters" of any utility-owned generation bid shall be binding on the utility for the first ten years of project operations. "Critical cost parameters" include initial capital costs, capital additions, fixed and variable O&M, and heat rates.