Tough Calif. GHG standards could be good news for coal

Tough Calif. GHG standards could be good news for coal

POWER - 11/04/2005

Emerging greenhouse gas emission standards are not necessarily a bad omen for coal, in the view of California Public Utilities Commission President Michael Peevey. In fact, the requirements could spur innovations in technology that could pave the way for the proposed $3.3 billion Frontier transmission line, predicted Peevey.

The four-state line would bring coal-fired power to California.

The California Energy Commission has called for a "performance standard" for utility procurement to be set no lower than levels achieved by a new combined-cycle natural gas turbine. The PUC has called for the standards to be set at levels of existing combined-cycle turbines.

If adopted in its current form, the GHG standard will likely mean that coal developers will not invest in the California market, warned Mike Easley, Wyoming Infrastructure Authority chairman in a recent letter to the CEC. WIA was started in 2004 to help build transmission lines to spur development of generating plants that could export their power.

But Peevey disagrees with the Wyoming official.

The proposed requirements, "may very well be technology inducing. [They] will stimulate improvements in technology so we could get to [integrated gasification combined cycle coal plants] with sequestration. If we could do that, then coal would be looked on with favor to come to California via wire," said Peevey.

Peevey affirmed his commitment to GHG reduction targets that Gov. Arnold Schwarzenegger set in June. Those targets call for the state to reduce GHG emissions to 1990 levels by 2020.

"We're very concerned about global warming as is the governor," said Peevey. "He made his announcement on June 1st that we have goals to meet in 2010, 2020 as well as 2050. To do that is going to require some very significant improvements in emissions in California and elsewhere," he said.

A lot is riding on whether the GHG standards come to fruition in terms of coal's entry into California. According to the PUC, there are about 30 proposed coal-fired plants across the West, some of which are planned in anticipation of meeting demand in California. Last year, 19.8% of all electricity sales in the state was derived from coal-fired generation, according to the CEC.

California is viewed as a renewables leader but there have been many bumps in the road. On Oct. 6, Peevey ordered IOUs to revise their 2006 long-term renewables procurement plans, saying they were short on details. The CEC's 2005 draft Integrated Energy Policy Report asserts that "California remains stymied in its efforts to increase renewable transmission development."

While acknowledging trouble spots, Peevey was upbeat about California's ability to meet renewables goals. California will very likely reach a 20% renewable resource mix by 2010, he said. He noted noting that 18 % of Southern California Edison's energy comes from renewables.

"Obviously to get to 33% by 2010 is going to be much harder and we are all going to have to work really assiduously to get there" said Peevey. But the costs of solar and wind power have come down sharply and will continue to drop, so these goals are achievable, he said.

In line with Schwarzenegger's request, Peevey confirmed the PUC is crafting a Million Solar Roofs' Initiative similar to legislation that stalled in the California legislature this year. The bill, S.B. 1, envisioned the installation of 3,000 MW of residential and commercial photovoltaic systems by 2018.

The PUC will confer with the governor in early December on details of the PUC's solar program, said Peevey. The commission is just beginning to put that program together, he said. The PUC will get back to Schwarzenegger on details of the Solar Initiative in early December. A draft plan will likely be released by early December, he added.

Peevey scoffed at investor-owned utilities' concerns that they are reluctant to sign long-term contracts because of fears direct access customers will not share costs.

While its understandable utilities want costs covered, these worries are overblown, said Peevey. For one thing, Peevey said, it is 2005 and direct access is suspended by statute until 2011 when all Dept of Water Resources power contracts terminate. "Some of this is elephantine tears," he said.

"We're going to make our resource adequacy requirements in this state. We're not going to let fears of direct access get in the way of our efforts as public policymakers to make sure this happens," he emphasized.

He also called shortsighted complaints by some market participants that resource adequacy requirements obligating load-serving entities to secure resources one year in advance is too short a timeframe to ensure that resources will be available.

"That's only telling part of the story," said Peevey. Utilities have Request for Offers for up to 10 years, he noted, and IOU's are not limited to one-year contracts. They do need to have 90% of their energy needs locked in a year ahead of time.

Utilities "need the freedom to negotiate though," said Peevey. "If we put them in a straight jacket, the price will go up."

Peevey declined to speculate on whether the governor's reorganization plan will pass as legislation. The controversial plan calls for transfer of PUC transmission planning authority to a new Dept. of Energy, which would include the CEC. The CEC has long angled for transmission planning oversight - a sore point between the two agencies.

After the California Senate in August rejected a non-legislative version, Schwarzenegger scrambled to fold it into existing legislation before the session ended in September.

Though the PUC's new draft plan on resource adequacy puts off the decision of whether a capacity market should be adopted, Peevey said he thinks California will embrace such a market structure.

"That's the way to ensure that we will have adequate resources for the long-term," he said.

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