California moves quickly to block new coal-fired power plants

By Mark Golden Jan 24, 2007 Market Watch

California utility regulators on Thursday plan to end the state's financial support for building new coal-fired power plants in other states until technology is developed to capture greenhouse gas emissions from such plants.

As decided by the California legislature and Gov. Arnold Schwarzenegger four months ago, the state's electric utilities will be prohibited starting Feb. 1 from investing in traditional coal-fired plants or signing new long-term contracts with such plants in an effort to combat global warming.

California, which has only two very small coal plants within its borders, imports about 20% of its power from coal plants in other western states. No coal plants will be shut down as a result of the new law and regulations, though proposals for new plants using traditional coal-burning technology likely will face a tougher road in the coal-rich West.

"This won't decrease greenhouse-gas emissions in California, but it will avoid an increase," said Nancy Ryan, an advisor to Michael Peevey, president of the California Public Utilities Commission.

The purpose of the ban is "to avoid backsliding during this interim period" until California's broader law limiting greenhouse gas emissions is fleshed out, or until the federal government moves to cap emissions nationally, Ryan said during a press briefing Tuesday.

Peevey said he supports rules proposed by a regulatory judge, who took a rather strict interpretation of the state's climate change law, Senate Bill 1368, enacted last fall. He said the judge's proposed rules are likely to be approved by a majority of the commission in a vote Thursday.

Rules Grandfather Old Plants

The CPUC is charged with enforcing the law at the state's investor-owned utilities and at the smaller, for-profit suppliers who compete with them. California's main investor-owned, regulated utilities are Edison International's (EIX) Southern California Edison, PG&E Corp. (PCG) and Sempra Energy's (SRE) San Diego Gas & Electric. The California Energy Commission will enforce the coal rules with municipal utilities like the Los Angeles Department of Water & Power and the Sacramento Municipal Utility District.

Under the proposed new rules, the state's for-profit utilities will be allowed to invest in, and sign long-term contracts with, generators that emit no more than 1,000 pounds of carbon-dioxide per megawatt-hour of electricity produced. That rate is about half the CO2 emitted by newer coal-fired power plants, and even a little less than the emissions for natural gas-fired plants built five years ago to meet power consumption around the clock.

However, under the law, newer models of baseload gas-fired generators will be exempt from the prohibition, as will coal-fired plants partly owned by the state's utilities. Existing long-term contracts with heavily polluting plants will be allowed to run to expiration, though not renewed. Technically, the rules apply only to "baseload" plants, which run almost constantly, but all coal-fired plants are baseload plants because they are cheap to operate.

The proposed rules take a strict definition of new investment. If approved, California utilities won't be able to invest further in coal plants they own if the new investment would extend the life of the plant by five years or more, increase the plant's output or increase the utility's ownership share.

Definition Of New Investment

The definition of new investment will mostly affect Southern California Edison's share of the Four Corners coal-fired plant in New Mexico and - if the Energy Commission follows the lead of the CPUC - LADWP's stake in the Navajo coal plant in Arizona. Southern California Edison last summer ended its involvement in efforts with co-owners to rebuild the Mohave power plant in Nevada.

The proposed rules also would simply prohibit utilities signing long-term contracts for supplies from unspecified power plants. Energy traders for years have insisted that a deregulated U.S. power market requires that trading companies be able to sell power as a commodity without necessarily specifying a specific generator or even buying the power before selling it.

To promote the building of generators using renewable energy, regulators are proposing that owners of such plants can sell credits for the renewable energy separately from selling the renewable power, which complies with the CO2 rule. In other states, regulators have said that the utilities get the renewable credits, which are needed to meet renewable quotas in some 21 states, when they buy renewable power. Some environmentalists have complained that renewable energy shouldn't be credited twice for meeting different environmental regulations.

California's utilities will be allowed to invest in new coal-fired technologies that turn coal into gas for burning and capture CO2 for sequestration, even when the emissions of such development projects exceed the 1,000 pound-per-megawatt-hour threshold.

However, the CPUC would reserve the right to approve contracts that would otherwise break the rules in cases where not doing so would be extremely costly or threaten blackouts.

Acting Quickly

The commission had already taken the initiative on such rules with for-profit power companies, so it was able to write the specifics under the new law quickly.

California's investor-owned and municipal utilities have said that the new law and regulations won't affect how they run their businesses because they have been focused on renewable energy and gas-fired generation to meet their customers' growing power needs. Several developers of new coal-fired power plants in the West have said the California law won't alter their plans.

However, over the past few months other states and the federal government have moved toward imposing greenhouse gas limits in laws that specifically discourage the building of new, traditional coal-fired plants.

California's broader global warming law signed last year would cap the state's carbon emissions at 1990 levels by 2020. The CPUC plans to address that law's implications for investor-owned utilities later this year.