California regulators ordered the state's major utilities to negotiate new contracts with a natural gas-fired plant to keep it from shutting down for lack of demand.

The move could be the first in a series, the owner of the plant warned, as post-deregulation-era policies result in a large fleet of relatively new power plants with expiring power contracts.

The California Public Utilities Commission voted 3-2 to force Pacific Gas & Electric Co., Southern California Edison and San Diego Gas & Electric into negotiations with Houston-based Calpine Corp.'s Sutter Energy Center, a 525-megawatt combined-cycle natural gas plant in Northern California that is currently sitting idle.

Calpine, backed by the state's grid operator, said Sutter should be kept open in order to support the state's renewable energy goals.

California is aiming to generate 33 percent of its electricity from renewable energy sources by 2020, but wind and solar power are susceptible to changes in weather and need backup generation. In addition, pending regulations limit how much seawater coastal plants can use for cooling, which could affect up to 20 percent of the state's conventional generation in coming years (Greenwire, March 21).

The potential for the state to lose flexible, quick-responding natural gas generation as it ramps up its proportion of renewable energy convinced the majority of the commissioners yesterday.

"It's an insurance policy on the cheap," said commission President Michael Peevey. He added that if California did not approve the deal, it would come before the Federal Energy Regulatory Commission, which would dilute state authority.

Regulators acknowledged that the situation might not need immediate resolution. In a separate proposal to be considered by the commission as early as next month, an administrative law judge concluded it was hard to tell if Calpine would permanently shut down its natural gas plants if they remained unused. Mandating utilities to buy its power would "likely result in Calpine extracting a premium price from the ratepayers," Judge Peter Allen wrote.

Commissioner Michel Florio agreed.

"If we do this for Calpine, I think it's virtually certain we're going to be inundated with similar requests from companies that are similarly situated," he said.

Pacific Gas & Electric, which opposed the decision along with the other utilities, said it would try to keep costs down. "We look forward to working on a contract with Calpine that is fair at a reasonable cost to our customers," said spokeswoman Lynsey Paulo. "We're also committed to working with the Cal ISO and other stakeholders on the longer-term issue of the need for flexible resources."

But consumer advocates dug in their heels, saying the move could set an extremely expensive precedent. Under the terms of the agreement, the utilities can spend up to $17.4 million to keep the plant open through the end of 2012, although it was amended to keep the end date flexible.

"If the market can't support that kind of plant right now, then it shouldn't exist," said Joe Como, acting director of the California Public Utilities Commission's Division of Ratepayer Advocates. "The commission giving a one-off contract deal to Calpine sends the wrong message to the market, that nobody's at risk for failure as long as they come to the commission for a special deal."

The grid operator is still requesting that the Federal Energy Regulatory Commission grant it the ability to buy power directly from Sutter in case negotiations with the utilities stall.

"We still need FERC to act on our request for waiver," Cal ISO spokeswoman Stephanie McCorkle said. "We can't rest until we have assurances that a deal has been negotiated and Sutter is under contract." The ISO will release an analysis next month of exactly how much "flexible" conventional generation is needed alongside various amounts of renewable energy, she said.

Nuclear shutdown could cause summer shortages

Southern California could face electricity shortages this summer if the San Onofre nuclear power plant remains closed, California officials said yesterday.

Grid operators might have to restart older power plants to meet demand in Los Angeles and San Diego, Steve Berberich, president and CEO of the California Independent System Operator, said during a board meeting.

Southern California Edison's San Onofre Nuclear Generating Station's Unit 3 was shut down in January after a water leak. Investigators have been looking into the wear found on steam generator tubes in the plant and at its other station, Unit 2, which has been offline for maintenance and refueling (Greenwire, March 16).

Peak demand is projected to be 46,352 MW this summer. The state has 50,341 MW of capacity, but that includes San Onofre's 2,250 MW. The plant is crucial to the Southern California grid because of its location and interconnectedness.

"There is significant risk if in fact we have heavy loads down there," Berberich said.

Berberich said the state could meet demand through public agencies' and military facilities' curtailing their power, as well as restarting an Orange County gas-fired plant that was recently retired. The Huntington Beach Power Plant would add 452 MW of capacity in the Los Angeles basin and allow another 350 MW to be sent into San Diego, he said.

Results of testing on San Onofre's Unit 3 will be released in the next week or two, he said.