California court upholds power contract with NRG’s Carlsbad project

The California Court of Appeal on Nov. 30 affirmed a California Public Utilities Commission approval from last year for a power purchase deal between the developer of the new, gas-fired Carlsbad Energy Center and San Diego Gas & Electric.

The Sierra Club, Protect Our Communities Foundation and the Center for Biological Diversity had sought a court review of a decision by California PUC to approve a power purchase tolling agreement (PPTA) between Carlsbad Energy Center LLC and San Diego Gas & Electric (SDG&E). Carlsbad Energy Center is a unit of NRG Energy (NYSE: NRG).

The environmental groups contended that the commission had not proceeded in the manner required by law because the decision impermissibly contradicts a reliability determination made in an earlier proceeding and exceeded the permissible scope of the proceeding as convened. They also argued that the PUC’s decision that the Carlsbad/SDG&E agreement is just and reasonable is unsupported by the evidence and that the PUC abused its discretion when it approved the contract because the contract reduced the size of the PPTA and provides power from a gas fired plant instead of a preferred resource.

Said the Nov. 30 court decision about the PUC’s approval: “We affirm. The earlier proceedings at issue specifically contemplated revisiting the reliability determination that petitioners argue could not be revisited by the SDG&E application. The issues addressed were within the issues as framed in the scoping memo for the proceeding, and there is no statutory or regulatory bar to PUC’s considering the issues in connection with SDG&E’s application. PUC’s determination that the contract is just and reasonable is supported by the evidence, and approval of a modified form of the agreement neither deprived petitioners of an opportunity to be heard nor was an abuse of discretion by the PUC.”

In 2013, the PUC determined that SDG&E would need 298 megawatts of power in addition to its projected supply to reliably serve its customer base in 2018. This anticipated shortfall of supply was due to the pending closure of the Encina Energy Center. So, the PUC authorized SDG&E to procure the needed power. That decision explicitly did not consider the impact on SDG&E’s need for power that would arise in the event power from the San Onofre Nuclear Generation Stations (SONGS) was unavailable for a prolonged period of time.

To fulfill the need resulting from closure of Encina Energy Center, the PUC in February 2014 approved an agreement between SDG&E and Pio Pico Energy Center LLC to supply 305 MW for 25 years beginning in June 2017.

In June 2014, the PUC addressed SDG&E’s need for additional power due to the permanent closure of SONGS in what has been referred to by the parties as the Track 4 Decision. SDG&E was authorized in the Track 4 Decision to procure between 500 MW and 800 MW to meet its needs by the end of 2021. The commission recognized that a significant amount of this new power would be provided by conventional gas-fired facilities, but at least 175 MW was to be from preferred resources, and 25 MW from energy storage resources.

The Track 4 Decision finds that even with the unexpected retirement of SONGS, SDG&E had “sufficient supplies to meet projected demands in the SONGS service area through at least 2018.” This finding was made, in part, due to the certainty that power from the Pio Pico facility would be procured as authorized by the PUC in February. However, the Track 4 Decision also contains a caveat that procurement levels authorized in the decision would be insufficient to meet all the needs in the area serviced by SONGS through 2022, and that additional resources may need to be authorized in other proceedings before the PUC.

The decision recognized that such additional procurement needs could become critical as early as 2018. Any necessary procurement could be completed either through the negotiation of bilateral contracts or through an all source request for offers “for some or all capacity” which is an open and competitive process authorized by state code.

In July 2014, SDG&E applied to the PUC for approval of a PPTA with Carlsbad. The agreement was intended to provide SDG&E with 600 MW supplied by gas-fired generating units at peak energy demand times for a period of 20 years beginning on Nov. 1, 2017. PUC issued its decision on the application in May 2015. The PUC approved an agreement between SDG&E and Carlsbad on the terms requested, but for 500 MW rather than 600 MW. The Commission found that SDG&E’s need for this additional power could arise as early as 2018, and the Carlsbad agreement was a reasonable means for SDG&E to meet this need. It further found SDG&E’s proposed cost allocation methodology was a reasonable means to allocate the cost of this agreement to all of SDG&E’s customers.

The environmental groups requested rehearing. In November 2015, the commission modified its order in certain respects and denied rehearing of the decision as modified. That triggered the court appeal.

Notable is that NRG has a web page for the Carlsbad Energy Center project.

Says the California Energy Commission website about the old and new versions of the project: “The licensed Carlsbad Energy Center Project (CECP) was a 558-MW gross combined-cycle generating facility. The 632-MW amended CECP would be located at the same, slightly larger northeastern parcel of the 95-acre Encina Power Station (EPS) power plant complex and would involve several phases of demolition and construction over a 64-month period. The amended CECP would provide power generation reliability in the San Diego Gas & Electric (SDG&E) service territory.”

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.