Duke, Mirant Question FERC Must-Offer Directive

Duke Energy Oakland LLC is questioning whether generators should be bound by a "must-offer" obligation included in recent FERC price-mitigation orders if that compliance means that generators will have to run their generating units over and above what is allowed under the units' air emissions permits.

Duke Energy Oakland was joined by Duke Energy North America LLC and Duke Energy Trading and Marketing LLC in filing comments at the Federal Energy Regulatory Commission in support of a recent emergency motion made by Mirant Americas Energy Marketing LP and Mirant Potrero LLC. Mirant asked FERC to clarify that Mirant Potrero is exempt from FERC's must offer obligation described in the Commission's recent price-mitigation orders (see NGI, April 30, June 25) to the extent compliance would require operation of its generation units in excess of hours specified in its air emissions permit.

Duke Energy Oakland owns and operates a generating facility in Oakland, CA, which consists of three diesel-fired generating units with a combined generating capacity of 165 MW. The Bay Area Air Quality Management District (BAAQMD) permit under which Duke Energy Oakland operates includes a facility-wide operating limit of 5,000 hours per calendar year. Each of the facility's six turbines has an individual maximum operating limit of 877 hours per calendar year. Two of the six turbines have already reached their hourly operating limits for this year and the entire facility will soon reach the 5,000-hour operating limit.

Duke Energy Oakland has engaged in talks with BAAQMD about entering into an agreement to allow operations in excess of the prescribed limits, similar to an agreement entered into with Mirant Potrero. Also, Duke Energy Oakland has had talks with the Environmental Protection Agency (EPA) related to an administrative order on consent in which EPA would agree not to challenge such an agreement between Duke Energy Oakland and BAAQMD.

Mirant Potrero and BAAQMD in late March entered into an agreement allowing for the generator to operate units for additional hours in order to meet California's electricity generation shortfall, subject to certain conditions. Under the agreement, Mirant Potrero's units are dispatched in response to certain emergency conditions and the generator pays BAAQMD a mitigation fee of $20,000 per ton of nitrogen oxide emitted by the units resulting from operations in excess of the 877 hour threshold.

The EPA subsequently issued an administrative order on consent related to the agreement struck between Mirant Potrero and BAAQMD. Notwithstanding EPA's commitment to not contest the Mirant Potrero-BAAQMD agreement, the agency's order stated that Mirant will be in violation of a key portion of its permit and a section of BAAQMD regulations once it breaks through the ceiling of 877-operating hours per calendar year.

But Duke Energy Oakland pointed out that FERC's price-mitigation orders state that under a must-offer obligation, no generator will be required to run in violation of its certificate or applicable law. "It is not appropriate for the Commission to require a generator to violate its permit in order to produce energy for the benefit of the state of California, pursuant to the request of its governor, while the generator remains subject to lawsuits and civil liability at the hands of the state's municipalities and citizens." Duke Energy Oakland asked FERC to grant Mirant's emergency request for clarification.

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