Pro­duc­tive, paid for — and ready to close

The mas­sive La Paloma power plant is in bank­ruptcy pro­ceed­ings while the state pushes new con­struc­tion at ratepay­ers’ ex­pense

Los Angeles Times - - BUSINESS - By Ivan Penn

The gi­ant La Paloma power plant has run hard since it opened in 2003, with own­ers boast­ing that its home near Bak­ers­field is ideal for send­ing elec­tric­ity up to­ward San Francisco or down to Los Angeles-area homes and busi­nesses.

The in­de­pen­dent power plant sits close to a key trans­mis­sion con­nec­tion be­tween ar­eas served by South­ern Cal­i­for­nia Edi­son and Pa­cific Gas & Elec­tric. That has al­lowed La Paloma’s elec­trons to zip eas­ily north or south de­spite a some­times jammed trans­mis­sion linkup be­tween the util­i­ties’ his­toric ter­ri­to­ries.

This ad­van­tage has helped the nat­u­ral-gas power gen­er­a­tor be­come Cal­i­for­nia’s most heav­ily used in­de­pen­dent power plant in the last decade be­hind only PG&E’s Di­ablo Canyon nu­clear plant.

But now La Paloma is in bank­ruptcy pro­ceed­ings and may be shut down be­cause the agency that op­er­ates the state’s power grid has de­cided that the fa­cil­ity’s Kern County lo­ca­tion isn’t that great, af­ter all. The power plant, about 110 miles north­west of Los Angeles, is too far to de­pend­ably pro­vide elec­tric­ity to the city and its en­vi­rons, the agency has de­ter­mined.

“We can’t rely on the La Paloma plant be­cause it’s out­side of the L.A. basin,” said Neil Mil­lar, ex­ec­u­tive di­rec­tor of in-

fras­truc­ture devel­op­ment at the Cal­i­for­nia In­de­pen­dent Sys­tem Op­er­a­tor, which man­ages the long-dis­tance trans­mis­sion lines for most of the state. “It is here, all about lo­ca­tion, I’m afraid.”

In­stead, the agency has sup­ported con­struc­tion of the Puente power plant in Ven­tura County, which would cost about $250 mil­lion and would be paid for by elec­tric­ity cus­tomers. La Paloma, just 14 years into a life­span that could stretch 30 or 40 years, is all paid up, built by pri­vate de­vel­op­ers at a cost of about $500 mil­lion.

Crit­ics say that ef­fec­tively re­plac­ing La Paloma with an ex­pen­sive new plant is short­sighted and waste­ful, and un­der­scores the ar­bi­trary de­ci­sion-mak­ing that has led to Cal­i­for­ni­ans pay­ing about 50% more for elec­tric­ity than the na­tional av­er­age.

Other large in­de­pen­dent power plants in the state, in­clud­ing the Sut­ter En­ergy Cen­ter, have closed decades ahead of sched­ule, while reg­u­la­tors have ap­proved con­struc­tion of new nat­u­ral gas plants with util­ity cus­tomers cov­er­ing the new costs.

Al­though a plant closer to Los Angeles might be marginally more re­li­able, the dif­fer­ence in dis­tance isn’t suf­fi­cient to jus­tify stick­ing ratepay­ers with the costs of build­ing a new power plant, es­pe­cially given La Paloma’s long track record, crit­ics con­tend.

La Paloma is a roughly 1,000-megawatt nat­u­ral gas plant that can power more than 700,000 homes. It is near a nat­u­ral gas pipe­line, so it isn’t re­quired to tap the trou­bled Aliso Canyon nat­u­ral gas stor­age fa­cil­ity, which has an un­cer­tain fu­ture af­ter a leak in Oc­to­ber 2015 lasted four months and forced thou­sands from their homes in the nearby Porter Ranch com­mu­nity.

“La Paloma is im­por­tant,” said Gary Ackerman, pres­i­dent of the Western Power Trad­ing Fo­rum, an as­so­ci­a­tion of in­de­pen­dent power pro­duc­ers whose mem­bers in­clude La Paloma’s owner.

“It’s ca­pa­ble of ad­just­ing or ac­com­mo­dat­ing a grow­ing amount of re­new­able en­ergy. It has flex­i­bil­ity. It has el­e­ments of re­li­a­bil­ity, and it doesn’t need Aliso Canyon,” he said.

La Paloma’s trou­bles came to a head last year with low mar­ket power prices, the lack of a guar­an­teed con­tract for its elec­tric­ity and a new an­nual re­view by the grid op­er­a­tor of lo­cal elec­tric­ity de­mand in the Los Angeles area and nine other state en­ergy re­gions. That re­view didn’t show La Paloma meet­ing the power needs of the Los Angeles area “nor has any other study,” the sys­tem op­er­a­tor told fed­eral reg­u­la­tors in a July 2016 fed­eral fil­ing.

The re­view was con­ducted with a new premise: Each re­gion should be en­ergy self-suf­fi­cient, the agency de­ter­mined, supplied with elec­tric­ity pri­mar­ily from nat­u­ral gas plants within the re­gion to more re­li­ably re­spond to sud­den drops in elec­tric­ity sup­ply from so­lar, wind and other re­new­able sources.

La Paloma fell out­side the bound­aries of the Los Angeles re­gion as well as the re­gions con­tain­ing the state’s ma­jor cities to the north. The plant, whose name means “the dove” in Span­ish, sud­denly found it had lit­tle mar­ket de­mand for its power and no state “re­li­a­bil­ity must run” con­tract that pays cer­tain well-lo­cated sup­pli­ers to stand ready to ramp up their fa­cil­i­ties at a mo­ment’s no­tice.

The re­gional bound­aries have been used to jus­tify con­struc­tion of as many as seven new nat­u­ral gas projects in South­ern Cal­i­for­nia, in ad­di­tion to the Puente plant in Ven­tura County, even though so­lar and other re­new­able power gen­er­a­tion are grow­ing rapidly and the state al­ready has a glut of power-gen­er­at­ing ca­pac­ity.

Cal­i­for­nia In­de­pen­dent Sys­tem Op­er­a­tor of­fi­cials say the rapid growth of re­new­able power is why the agency is push­ing for nat­u­ral gas fa­cil­i­ties close to where con­sumers use the elec­tric­ity. It’s im­por­tant, they say, to en­sure re­li­a­bil­ity for the times when the sun isn’t shin­ing and the wind isn’t blow­ing.

The ad­di­tional power plants, how­ever, have cre­ated re­dun­dan­cies and ex­cess power that is be­com­ing ex­pen­sive and ignores the chang­ing dy­nam­ics of elec­tric­ity pro­duc­tion and stor­age.

A re­cent Los Angeles Times in­ves­ti­ga­tion found that power plants such as La Paloma are clos­ing as a re­sult of a glut of elec­tric­ity ca­pac­ity in the state. At the same time, reg­u­la­tors con­tinue to ap­prove more plants and in­crease elec­tric­ity rates, even though Cal­i­for­nia con­sumers are us­ing less power.

The ex­cess elec­tric­ity and build­ing of new power plants, trans­mis­sion lines and re­lated equip­ment means Cal­i­for­ni­ans are pay­ing $40 bil­lion a year for elec­tric­ity, $6.8 bil­lion more than nine years ago.

Some blame the high cost and the power glut on the state’s em­pha­sis on clean en­ergy such as so­lar and wind power projects, which don’t pro­duce elec­tric­ity 24 hours a day. Oth­ers point to util­i­ties want­ing to build plants, trans­mis­sion lines and other equip­ment to make profit.

The most vo­cal crit­ics of Cal­i­for­nia’s elec­tric­ity sys­tem ar­gue that La Paloma’s tra­vails — along with other plants that have closed or are fac­ing shut­down — re­sulted from poorly de­signed en­ergy pol­icy.

In fil­ing for bank­ruptcy, La Paloma blamed mar­ket fac­tors such as low nat­u­ral gas prices, Cal­i­for­nia’s in­creas­ing use of re­new­able en­ergy and slow growth in elec­tric­ity de­mand, “ex­ac­er­bated by an in­hos­pitable reg­u­la­tory en­vi­ron­ment.”

Ackerman also pointed to state leg­is­la­tors and en­ergy reg­u­la­tors.

“You told them to build. You told the util­i­ties to buy the en­ergy,” Ackerman said. “That was the pol­icy of the state and it over­built. It over-pro­cured en­ergy, and therein lies the prob­lem.”

The ex­cess ca­pac­ity — de­signed to help avoid another dis­as­trous pe­riod like the 2000-2001 en­ergy cri­sis that left Cal­i­for­ni­ans in the dark with rolling black­outs — might worsen the prob­lem it was meant to solve, Ackerman said.

“It’s a pretty dif­fi­cult sit­u­a­tion,” he said. “Even­tu­ally, it’s just go­ing to come crash­ing down.”

La Paloma, the state’s 11th-largest power plant, has typ­i­cally run far above the av­er­age nat­u­ral gas plant, as much as roughly 78% of its po­ten­tial to pro­duce power. But it has ex­pe­ri­enced dou­ble-digit de­clines in us­age over the last two years to a nearly all-time low of less than 50%.

“Ab­sent some change in com­pen­sa­tion, La Paloma has de­ter­mined that con­tin­ued eco­nomic op­er­a­tion of the La Paloma fa­cil­ity is not jus­ti­fied, at least in the short to medium term,” James Maiz, a part­ner in La Paloma ma­jor­ity owner Rock­land Cap­i­tal, told the Fed­eral En­ergy Reg­u­la­tory Com­mis­sion last June as part of a pe­ti­tion to save the plant.

Maiz added that the com­pany pro­jected an an­nual loss of $39 mil­lion with­out a re­li­a­bil­ity con­tract from the state or other sup­port. Maiz did not re­turn re­peated phone calls seek­ing com­ment.

Un­like reg­u­lated, in­vestor-owned util­i­ties — South­ern Cal­i­for­nia Edi­son, Pa­cific Gas & Elec­tric and San Diego Gas & Elec­tric — La Paloma’s owner doesn’t have re­tail cus­tomers who pay for the plant. Older in­de­pen­dent plants such as La Paloma lack the kind of con­tracts newer plants re­ceive that al­low for re­cov­ery of con­struc­tion costs from the util­i­ties’ cus­tomers.

For ex­am­ple, the Puente power project in Ven­tura County that state reg­u­la­tors fa­vor over La Paloma is be­ing de­vel­oped by Edi­son and will be built and owned by NRG En­ergy Inc., based in Hous­ton. Edi­son cus­tomers would foot the bill for the plant’s con­struc­tion over some 20 years, re­gard­less of how much the plant runs.

The con­tract for a new plant “is the ul­ti­mate se­cu­rity for the pri­vate com­pany,” said Bill Pow­ers, a San Diego en­gi­neer who tes­ti­fies in state util­ity cases. “They get one of th­ese con­tracts and they’re golden.”

With­out such sup­port, plants such as La Paloma have dif­fi­culty com­pet­ing in the mar­ket, un­less they can se­cure a con­tract for their power — some­thing the power plant has been un­able to do at a price that makes sense. And no one is of­fer­ing La Paloma a con­tract.

“If La Paloma was not able to se­cure con­tracts it was be­cause other fa­cil­i­ties of­fered the util­i­ties bet­ter value than La Paloma,” said Ter­rie Pros­per, a spokes­woman for the Cal­i­for­nia Pub­lic Util­i­ties Com­mis­sion.

“The ISO has a process where it can pay a power plant that pro­vides crit­i­cal ca­pac­ity to keep op­er­at­ing even if the plant does not have a util­ity con­tract,” Pros­per said. “In this sit­u­a­tion, the ISO did not see a need to ex­e­cute that process.”

In Oc­to­ber, fed­eral en­ergy reg­u­la­tors de­nied La Paloma’s re­quest for con­tract help, stat­ing that La Paloma did not in­di­cate that it had made at­tempts to avoid fi­nan­cial losses other than seek­ing to cut op­er­a­tions to save money.

In De­cem­ber, La Paloma Gen­er­at­ing Sta­tion filed for Chap­ter 11 bank­ruptcy pro­tec­tion, list­ing as­sets be­tween $100 mil­lion to $500 mil­lion and li­a­bil­i­ties of $500 mil­lion to $1 bil­lion.

Gary Kazan­jian For The Times

LA PALOMA Gen­er­at­ing Sta­tion may be shut down be­cause the agency that op­er­ates Cal­i­for­nia’s power grid has de­cided that the fa­cil­ity’s Kern County lo­ca­tion, about 110 miles north­west of L.A., is too far to re­li­ably pro­vide elec­tric­ity to the city and its en­vi­rons.

Gary Kazan­jian For The Times

IN FIL­ING for bank­ruptcy, La Paloma blamed mar­ket fac­tors such as Cal­i­for­nia’s in­creas­ing use of re­new­able en­ergy and slow growth in elec­tric­ity de­mand, “ex­ac­er­bated by an in­hos­pitable reg­u­la­tory en­vi­ron­ment.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.