Natural gas prices and flexible gas-fired power generation are two keys to California’s attempt to deal with the impact of more renewable-based and decentralized power supplies, according to the CEOs of Pacific Gas & Electric Co. (PG&E) and Southern California Edison Co. (SCE).
PG&E CEO Anthony Earley and Edison International CEO Ted Craver, who oversees SCE operations, told participants last month at the Wolfe Research Power and Gas Leaders Conference in New York City that a new law and revised policies in California would keep the state on the cutting edge for energy policy innovation but upend some utility precepts.
State legislative bill AB 327, which Gov. Jerry Brown is expected to sign, as well as a renewables mandate already in place, are changing how utilities approach gas-fired and other traditional generation sources. Gas plants have to be flexible as well as reliable in backing up intermittent solar and wind power.
AB 327, backed by the utilities, would cut the number of rate tiers to two from four, allow for more revenue recovery through monthly services charges, and attempt to make rates fairer between customer groups that can afford to invest in distributed generation solar systems and those that cannot.
Assuming Brown signs the legislation, California’s energy sector will still provide “huge challenges,” given the large amounts of renewable energy that will be part of the future mix, Earley said.
“We own two state-of-the-art, combined-cycle gas-fired power plants…And in 2016-17 we will take ownership of another gas-fired plant that is about to go into construction, the Oakley Plant” (see Daily GPI, Dec. 27, 2012). “So, we’re going to have an extremely clean portfolio in the future.”
However, California’s energy sector will still provide “huge challenges,” given the large amounts of renewable energy that will be part of the future mix, he said.
“We’re already starting to see some of the older, less efficient [gas-fired] plants owned by independent power producers having to be dialed back in the middle of the day when a larger chunk of solar power is peaking,” Earley said. “Then when the sun starts to set, the [gas plants] have to ramp back up quickly, and therein lies the challenge for all California utilities.”
Earley stressed that the California power grid was not designed for the quick ramp-ups by fossil fuel plants that are increasingly more essential with the influx of solar and wind. “Now you’re going to see several peaks and valleys during the day.”
That puts price pressures on the state’s already high electric utility rates, averages well above most states, said Craver, noting that the state’s climate change law and renewable portfolio goals both would increase prices.
“It will be a challenge even if natural gas prices remain fairly level to keep the system average rate around 16 cents[/kWh] and not watch it migrate toward 20 cents,” Craver said. Edison and PG&E will have to keep pushing down operating/maintenance costs on their transmission/distribution systems to wring out more efficiencies, he said.
The CEOs drew short of blaming California regulators for pushing policies that are putting upward pressures on rates and perhaps alarming the Wall Street credit rating agencies.
Earley reiterated that the California Public Utilities Commission’s safety staff recommendation for a $2.25 billion penalty in the wake of the San Bruno, CA, explosion three years ago “is in orders of magnitude larger than the largest penalty ever imposed on a natural gas pipeline” (see Daily GPI, May 29).
He argued that news media and some community leaders have questioned whether the huge penalty will threaten the utility’s ability to invest in the pipeline system,. let alone invest in renewable resources.
“I don’t have too much to add,” Craver said. “These things do have some spill-over effect in California just after the state has dug its way out in recent years from a bad reputation acquired at the end of the energy crisis of 2000-2001.”
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