In a preview of what may happen this summer, San Diego is in the middle of a showdown over whether 18 small generators , which collectively have the capacity to provide power to more than 250,000 local homes , will be turned off due to nonpayment.
The president of San Diego Gas & Electric Co. said April 12 she was “appalled” at the request to shut down the “peaker plants” it operates under contract for Houston-based Dynegy Power Corp. and Minnesota-based NRG Energy Inc.
Officials for Dynegy and NRG said the shutdown was necessary since they haven’t been paid by the state power agency in more than three months.
At issue are 18 combustion-turbine generators, capable of providing 267 megawatts of power, which SDG & E; sold along with the 951-megawatt Encina Power Plant in Carlsbad to Cabrillo Power , a joint venture of Dynegy and NRG, said Ed Van Herik, a spokesman for SDG & E.;
Known as “peaker plants,” the generators provide additional generation when the supply of energy is tight, Van Herik said. They are located throughout the county.
On April 11, Steven Bergstrom, president and chief executive officer at Dynegy, informed SDG & E; that because of concerns over nonpayment from the California Independent System Operator, the company planned to stop operating the combustion turbines and discontinue sales to the Cal-ISO.
They also threatened legal action against SDG & E; if the utility refused to comply, Van Herik said.
In response, Debra L. Reed, president of SDG & E;, fired off a letter the following day. The letter said SDG & E; , which continues to operate the plant and the turbines under contract , will resist Dynegy’s request.
“Given the energy crisis currently gripping our state, we are appalled that you would even consider such an action,” the letter stated. “(This) is in direct violation of orders by the Cal-ISO and puts thousands of Californians, including our customers, at risk. We will not comply. SDG & E; is charged with keeping the lights on for our customers and we will do everything in our power to do so.”
Under SDG & E;’s contract with Cabrillo, the utility has the legal authority to continue operating the generating units if the Cal-ISO calls for it in times of severe power shortages throughout the state. This has happened several times already, Van Herik said.
More trouble could follow. Van Herik said under the terms of the contract SDG & E; signed with Cabrillo in 1999, SDG & E; will continue to operate the Encina plant and the 18 turbines only until May 22.
After that date, Dynegy and NRG take over operations of the plant. Van Herik would not speculate on what would happen next.
Stan Marks, vice president of NRG North America, Western region, confirmed that Cabrillo was looking to shut off the generator turbines due to nonpayment. The ISO has not paid Cabrillo for about three months, he said.
However, the generators would continue to run during times of a “reliability must-run” emergency from the ISO. The generators will be shut off only during times of “out-of-market” calls.
These are two different types of emergencies from the ISO. A reliability must-run emergency occurs when there is not enough power in the area, and the peaker plants are operated to meet power demand locally. An out-of-market call occurs when the power is needed elsewhere, Marks said.
The Federal Energy Regulatory Commission recently issued an order stating that peaker plants are not required to operate for out-of-market calls when generators haven’t been paid, he said.
“FERC has specifically said they don’t require you to operate when you’re not being paid; you don’t have to sell to a non-creditworthy entity that doesn’t meet the test, and the California Independent System Operator does not meet the test,” Marks said.
After May 22, the same conditions will prevail. Cabrillo would continue to operate the plant during reliability must-run emergencies, but not during out-of-market calls, he said.
Marks added the reason the FERC gave the order in the first place was the federal agency was concerned that the Cal-ISO was continuing its “over-reliance” on emergency scheduling of power rather than entering into forward contracts.
This was against FERC’s wishes that the state stabilize the market by entering into long-term contracts, he said.
“We’re very willing to enter into contracts with the state of California and anyone else, but we need to get paid,” he said.
