California court tosses commission approval of PG&E gas project

A California appeals court decided March 16 that the state Public Utilities Commission improperly approved an application from Pacific Gas and Electric Co. (PG&E) for the gas-fired Contra Costa power plant project.

The commission initially denied the application by PG&E for approval of an agreement for the construction of the Contra Costa plant, which PG&E would then purchase and operate. PG&E subsequently filed a petition for modification of the commission‘s decision, requesting approval of the same project, but with a later in-service date. The commission denied the modification petition but, on its own motion, deemed the petition an application for approval and granted it.

The Utility Reform Network (TURN) appealed the commission‘s decision approving the project, contending the commission failed to proceed in the manner required by law. In its March 16 ruling, the First Appellate District of the California Court of Appeal agreed with TURN and threw out the commission approval.

In December 2007, the commission adopted a long-term procurement plan for PG&E for 2007-2015, authorizing it to procure 800–1,200 MW of new resources by 2015 and to issue a long-term request for offers to obtain agreements for this new capacity.

In September 2009, PG&E filed an application for commission approval of four agreements from its 2008 request for offers, including the one at issue between PG&E and the Contra Costa Generating Station LLC. This agreement provides for the construction of a new, natural gas-fired combined cycle facility in Oakley that would produce 586 MW at peak conditions, beginning June 4, 2014. Under the terms of the agreement, PG&E would purchase and operate the completed facility. Seeking to recover the costs of the Oakley Project under ratemaking principles, PG&E requested authorization for an initial annual revenue requirement of $223.9m in nonfuel costs alone, to be passed on to ratepayers.

PG&E requested approval within eight months, or by May 30, 2010, in order to avoid delaying the on-line date of certain of the proposed facilities. Several intervenors filed protests urging reconsideration of the need determination based on sharply reduced electric demands during the two-year economic downturn since the December 2007 procurement plan was approved. TURN filed a protest proposing alternative ratemaking mechanisms.

TURN said it supported PG&E‘s selection of projects, but would tend to agree that PG&E‘s true needs are now less than those adopted in that decision, the court noted. In a July 2010 decision, the commission authorized PG&E to procure 950 to 1,000 MW of new resources within the range of need determined in the prior need proceeding. The commission approved three of the agreements but rejected the Oakley Project (586 MW), finding it is not needed at this time.

Less than a month later, in August 2010, PG&E filed a petition for modification, contending changed circumstances supported approval of the Oakley Project. Noting that the commissioners had expressed support and suggested the project may have been approved with a later commercial availability date, PG&E said it had renegotiated the agreement to extend that date from June 1, 2014, to June 1, 2016. PG&E included a declaration to this effect and proposed modifications that would allow it to procure 1,305 MW of new generation, eliminate the conditions for resubmission and authorize costs recovery under a partial settlement.

TURN filed a response in “vehement opposition,” spurred by what it viewed as PG&E‘s attempt to circumvent the commission‘s procedure for resubmission. TURN contended PG&E was required to file an application supported by evidence showing need for the project and compliance with the conditions imposed by the commission in the needs case. PG&E contended these conditions did not apply because it was seeking modification based on a later in-service date. It said the date change did not require reconsideration of the need determination and there was a need for new resources in 2016 and beyond, in any case. PG&E opposed deciding approval of the revised project in the 2010 procurement proceeding, which was behind schedule and not expected to conclude until 2011 or 2012. PG&E said a two to three-year delay will effectively terminate project development.

In this case, the commission decided issues outside the scope of its pending case by labeling a petition for modification a new application without treating it as such under its rules, and the record does not demonstrate good cause for the commission‘s departure from its rules, the court ruled. In doing so, the commission effectively expanded the scope of the proceeding in an improper manner. The parties did not have notice that the commission was considering instituting a new proceeding until it posted the revised alternate on its website, less than a week before adopting that decision, and it did not formally establish the scope of the issues to be considered in the new application proceeding until that proceeding was decided. The parties also were denied an opportunity to litigate the new issues presented through discovery and the presentation of evidence, the court said.

PG&E is a unit of PG&E Corp. (NYSE:PCG). Government documents show that Contra Costa Generating Station LLC is controlled by Radback Energy Inc.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.