Utility, NRG affiliate argue for approval of power deal for Carlsbad project

At its April 9 meeting, the California Public Utilities Commission is due to hear arguments over a March 6 recommendation by one of its administrative law judges against approval, at ths time, of a power purchase tolling agreement between San Diego Gas & Electric and the Carlsbad Energy Center LLC unit of NRG Energy (NYSE: NRG).

“This decision denies San Diego Gas & Electric Company’s application for authority to enter into a purchase power tolling agreement with Carlsbad Energy Center, LLC, without prejudice to a renewed application for its approval in the event that San Diego Gas & Electric Company’s request for offers fails to produce more than the minimum required 200 megawatts of preferred resources and/or energy storage, or for approval of an amended purchase power tolling agreement with Carlsbad Energy Center, LLC, for a smaller project in the event that the request for offers produces more than the minimum 200 megawatts of preferred resources and/or energy storage but less than the entirety of San Diego Gas & Electric Company’s procurement authority,” said the recommended decision. 

The commission had authorized San Diego Gas & Electric (SDG&E) to procure between 500 MW and 800 MW of new resources by 2022 to meet the local capacity reliability (LCR) need caused by the retirement of the San Onofre Nuclear Generating Station. Under the pending application, SDG&E seeks authority to enter into a power purchase tolling agreement (Carlsbad PPTA) with Carlsbad Energy Center LLC to fill 600 MW of its local capacity need.

The Carlsbad PPTA would provide about 600 MW of nominal capacity from a natural gas-fired, simple cycle peaking facility located adjacent to the existing Encina Power Station in Carlsbad, California. The Carlsbad project would consist of six generating units utilizing General Electric LMS 100 technology with each unit capable of multiple starts and stops per day. The Carlsbad project has an expected online date of Nov. 1, 2017, and is expected to provide power for 20 years.

The ALJ’s recommended decision said: “If the need to be met is defined as ‘a 600 MW conventional gas-fired facility in the Carlsbad area on-line by 2018,’ then we would find it reasonable to approve the Carlsbad PPTA as a reasonable means of meeting that defined need. However, D.14-03-004 defines the need to be met as ‘500 MW to 800 MW of new resources, up to 100 percent of which may be from preferred resources or energy storage, in SDG&E’s LCR area on-line by 2022.’ We therefore find it unreasonable to approve the Carlsbad PPTA at this juncture pending a determination that the results of SDG&E’s [request for offers] demonstrate the lack of feasibly available and cost-effective preferred resources or energy storage to meet some or all of SDG&E’s LCR need beyond the 200 MW minimum that must be met by preferred resources or energy storage.”

SDG&E anticipates that it will identify a preliminary short list of offers in response to its RFO mid-May 2015 and file an application for approval of its results in the first quarter of 2016, making it unlikely any such results will match the Carlsbad PPTA’s on-line date, the proposed decision noted.

Utility, Carlsbad take issue with several points in recommended decision

SDG&E said in a March 26 brief filed with the utilities commission that there are three basic errors in the proposed decision (PD) from the administrative law judge:

  • The PD errs in concluding that the Utilities Commission already has “addressed” and “accounted for” the retirement of the 965 MW Encina Power Station in 2017 by approving the 300 MW Pio Pico Energy Center because the Pio Pico decision – unlike the Track 4 Decision – assumed the San Onofre Nuclear Generating Station (SONGS) would remain in service.
  • The PD errs by largely divorcing the Loading Order from any consideration of reliability or other important atate policy concerns such as once-through cooling (OTC) deadlines.
  • The PD errs in drawing speculative conclusions from the one-week old raw bid data from SDG&E’s all-source Request for Offers (RFO).

The utility added: “With respect to NRG’s alternative proposal in its March 20, 2015 opening comments, SDG&E is not opposed to the reduction in size of the project from 600 MW to 500 MW, assuming the capacity rate is unchanged, which is SDG&E’s understanding. With respect to the proposal for an option for a sixth unit, in the future, SDG&E would be willing to consider negotiating an amendment for the additional quantity or negotiating the terms of an option if the right to exercise the option were at SDG&E’s sole discretion (subject of course to the Commission’s subsequent review and approval of the terms and conditions), though SDG&E’s hope is to meet the need for the additional 100 MW with preferred resources or energy storage and SDG&E would like the flexibility to fill this need from either its pending 2014 RFO, some future RFO or other procedural vehicle. SDG&E is committed to pursuing additional cost effective and feasibly available preferred resources and energy storage. To this end, SDG&E will continue to work closely with its Procurement Review Group to review the analysis of the 2014 RFO and future RFOs as needed to identify opportunities for incremental preferred resources and/ or energy storage to meet SDG&E’s LCR need, minus any need filled by the 500 MW NRG project.”

Said the March 20 comments from Carlsbad: “The Proposed Decision correctly finds that the terms and conditions of the power purchase tolling agreement for the 600 megawatt (‘MW’) Carlsbad Energy Center (‘PPTA’) are reasonable, and that the PPTA is a reasonable means to meet SDG&E’s local capacity requirements (‘LCR’) need. The Proposed Decision errs, however, by misinterpreting Decision 14-03-004, which recognized the Commission’s statutory responsibility to ensure reliability and gave SDG&E flexibility to procure up to 600 MW of conventional resources to meet LCR need in 2018. The Proposed Decision also errs by failing to recognize uncontroverted evidence demonstrating the need to install new natural gas-fired capacity by 2018 to avoid reliability problems after retirement of the 965 MW Encina Power Station (‘Encina’) at the end of 2017. The Proposed Decision also errs by failing to recognize that waiting for the results of SDG&E’s 2014 request for offers (‘RFO’) would delay the Carlsbad Energy Center’s online date until two years after the date when Encina will retire to comply with mandatory restrictions on the use of once-through cooling technology (‘OTC’).”

Carlsbad advocated for approval of the PPTA terms as currently written. Carlsbad also presented an alternative proposal to modify the PPTA to apply to five generating units of the Carlsbad Energy Center to meet 500 MW of LCR need, with the sixth unit to be included automatically under the PPTA to meet an incremental 100 MW of LCR need if the RFO will not produce more than 200 MW of feasibly available and cost effective preferred resources and energy storage capable of meeting reliability needs.

Carlsbad noted: “The Commission should not assume that Encina’s OTC deadline could be extended for two years to wait for completion of the RFO process. The [California ISO] explained that the process for suspending compliance with the OTC regulation is fraught with uncertainty and is not a realistic alternative to developing the Carlsbad Energy Center. The claim that Encina could keep operating for two years beyond its compliance deadline also contradicts the evidence in this proceeding confirming that Encina has reached the end of its useful life and will retire at the end of 2017. The Proposed Decision should be modified to recognize that it is not prudent to risk reliability by relying on a lengthy extension of the OTC deadline and a forced delay of Encina’s retirement.”

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.