California’s regulatory process for adding merchant power plantsand repowering existing merchant sites is likely to get morecomplicated and time-consuming, based on discussions at a Jan. 25one-day energy roundtable on market and infrastructure issuessponsored by the California Public Utilities Commission in SanDiego.

Participants — which included merchant operators, marketers,utilities, regulators and a key state legislator — were dividedabout whether market signals, centralized government planning or acombination should chart the state’s future energy planning. As aresult, some of the merchant operators in attendance like Duke andNRG came away with the conclusion that the process is going tobecome more daunting, not less.

“There are still economic incentives to run old, less efficientdirty plants at the expense of new plants,” said Sen. Steve Peace,the principal architect of the state’s ’96 electricityrestructuring law. “I think that is a pretty easy thing to fix froma public policy standpoint. I think Californians, including SanDiegans, are willing to pay a premium for clean power andreliability. In other words, we’ll pay a little more forelectricity if we are getting reliability and clean air for it.

“We’re not going to pay a little more just to create a profitmargin to attract competitors so we can claim small customers aregetting the benefits of competition.”

Peace is concerned that if generators get what he considers thewrong incentives through fixed, long-term deals with the stateindependent system operator (ISO), they will “crowd-out” cleaner,newer plants proposed by developers who are willing to take morerisks.

David Marcus, an attorney, former state energy commission staffmember and currently energy consultant for San Diego County JointLabor Council, cautioned that where the market is relied on formeeting future infrastructure needs there will always be a certainamount of tension and nervousness. Developers aren’t going tocommit capital until it is absolutely necessary, he told theroundtable. “We are always going to have this nervousness aboutthe market not responding and the lights going out,” Marcus said.”That is just the way it is going to be when you depend on marketsolutions.”

San Diego Gas and Electric’s Geoff Gaebe, director ofengineering services, said preliminary planning and permittingshould be done early as a contingency in case the market and publicpolicy needs do arise to pursue given plant or transmissionprojects.

SDG&E for a long-time has had a contingency in its five-yeargrid plans for a new 500-KV transmission line into San Diego, forexample. “Timelines for generation are a lot shorter today than alot of transmission projects,” Gaebe said. “I think that is one ofthe reliability issues going forward. Can we wait for other optionsand hope they show up on time, or should we have a plan in place toassure reliability, with a transmission plan? That way if themarket doesn’t provide, we have preliminary work done, so we canmove ahead with the transmission options.”

Some roundtable participants expressed concerns that merchantoperators who can’t get assurances for fixed-cost, long-term supplydeals with the ISO may withhold their plans for new plants untilthe situation becomes critical. Nevertheless, the ISO’s KellanFluckiger, vice president of operations, said the state’stransmission grid operator intends to keep to a minimum itsyear-to-year “must-run” contracts to only those needed for systemreliability purposes.

“We are not — and do not — intend to go into long-termcontracts,” Fluckiger said.

“Any generator who can get it will take the opportunity forfixed-cost, long-term contracts…..I know I would if I were intheir position.”

Richard Nemec, Los Angeles

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