California regulators looking into forced power plant retirements

California regulators are looking into the possibility of forced retirement of aging electric generating units, if it benefits the public. Up to now, state energy policy refrained from mandating outright retirements of older generators, a staff report for the California Energy Commission noted, but the state could have an interest in offering incentives to persuade owners to take them out of service.

By the OGJ Online Staff

HOUSTON, Dec. 11 -- California regulators are looking into the possibility of forced retirement of aging electric generating units, if it benefits the public.

Part of a report the staff of the California Energy Commission presented Tuesday at an electricity and natural gas workshop, the assessment concluded the California market needs a dramatic overhaul to avoid more problems, including future electricity shortages, which the state experienced last year.

The report concluded the market is headed for the "bust" phase of a "boom-bust" cycle and projects falling electricity prices for the next 3 years. Among the findings: new combined cycle plants are less profitable than hoped for and the profitability of existing merchant plants is greatly reduced.

New electric generation added in the last year and resulting downward pressure on prices will "greatly reduce" the need for and profitability of older, large gas-fired units used to serve base load demand, the staff said. The efficiency and flexibility of smaller units currently being permitted threatens the profitability of these older plants and raises questions about their future and what, if any, role the state should play in any decision about keeping them running, according to the report.

Up to now, state energy policy refrained from mandating outright retirements of older generators, the report noted, but the state could have an interest in offering incentives to persuade owners to take them out of service. The report proposed a method for scoring a unit's usefulness, including such measures as plant age, reliability, location, and various environmental criteria.

"The weighted values for all factors would then be combined into a score for the unit," the report said. Individual power plant units would be ranked according to their individual unit scores. The staff would use the screen to identify the poorest ranking units, which would be candidates for a site-specific evaluation of the costs, benefits, and risks resulting from the retirement or reconfiguration of individual units.

Units may perform poorly on both environmental and reliability criteria, but still have value to the owner, the report noted. If the state has an interest in seeing the unit retired "external" to the interests of the owner, it said, the state could offer incentives to the owner. Or, the report noted, it could be preferable to allow market forces to make the determination as is now the case.

The report also looked at market design, retail rates, and supply adequacy in California. The staff report concluded a sustainable generation market isn't feasible without modifications to retail pricing and the wholesale energy market.

The staff assessment calls for a debate in multiple forums and advocates new state laws to take the place of short-term fixes legislated to handle last year's crisis. "While needed at the time, such approaches may be counterproductive in a redesigned market," it said.

The commission will take comment on the report until Dec. 21 and issue a final version later.

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