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Historic California Gas-Fired Merchant Plant Files Chapter 11

One of California's first major merchant natural gas-fired electric generation plants -- the La Paloma Generating Co. LLC near Bakersfield -- on Tuesday filed for Chapter 11 bankruptcy in a federal court in Delaware, citing a combination of unfriendly regulations and the state's major shift toward renewable energy sources of power.

The baseload power plant was originally developed by a unit of Pacific Gas and Electric Co. (PG&E) nearly two decades ago.

Privately held La Paloma's owner, Rockland Capital LLC, and other merchant gas-fired power plant operators in California have been seeking help from state officials to keep their plants economically viable in order to preserve grid reliability as reliance on intermittent renewables increases.

The operators of the 1,200 MW combined cycle plant 110 miles northwest of Los Angeles listed $524 million in debt in the bankruptcy filing. Market factors, including slower-than-expected growth in electricity demand and California's rise in renewable generation resources, were "exacerbated by an inhospitable regulatory environment," it said.

Power prices are currently depressed through an unexpected combination of oversupply of natural gas and a boom in solar and other renewable energy. It has threatened the viability of natural gas plants that sell power into California's electricity market.

In its court filing, La Paloma said it had decided that Chapter 11 was in the best interest of the company and its creditors and stakeholders.

La Paloma listed Bank of America Corp. and SunTrust Bank as its lenders. It has trade debt with a number of organizations, including Alstom Power Inc, the West Kern Water District and PG&E.

In 2000, a unit of PG&E Corp. broke ground for the La Paloma plant with initial plans for 1,048 MW of generating capacity and a projected gas load of about 150 MMcf/d from the Kern-Mojave Pipeline running about 40 miles west of Bakersfield. At the time it was billed as the largest merchant power plant.

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