Calif. PUC Orders Utilities to Negotiate with Calpine for Sutter Contract, Costs Would Be Nonbypassable

The California PUC has directed Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric to enter into contract negotiations with Calpine for Calpine to maintain operation of the Sutter Energy Center, with costs recovered via nonbypassable charge.

As previously noted, 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 PUC's resolution finds that the need for the Sutter plant is "system wide," and that, "any benefits and costs should be applied via a non-bypassable charge to all benefitting customers."

In adopting a resolution directing the negotiations, the PUC said that it would excise language from the order limiting the contract to be negotiated under the contract to nine months in length (ending December 31, 2012).

The price under the contract shall be less than the price under the California ISO Capacity Procurement Mechanism.

Commissioners Mike Florio and Mark Ferron dissented from approving the resolution.

Ferron cited the high cost sought by Calpine, and said that agreeing to Calpine's sought terms would hinder efforts for a long-term solution to capacity and related issues. Ferron predicted the PUC's ad-hoc intervention would prompt a queue of requests for out-of-market payments from similarly situated assets.

While Calpine has claimed it would scrap the plant without a backstop mechanism compensating it for capacity, Ferron said that the plant, even without a backstop capacity mechanism, has significant value well in excess of its scrap value as an operating asset.