Calif.'s GHG policy may disrupt coal-fired power, interstate transmission

California's pending plans to reduce greenhouse gas emissions would block utilities from using coal-fired generation and stop a proposed 500-kV power line between the two states, a Wyoming agency is warning California regulators.

However, Sempra Energy unit Sempra Generation might disagree with that position if the price of California's new "greenhouse adder" is kept low enough to allow the company to sell power from its proposed coal-fired Nevada plant into California, according to a company spokesman.

The California Energy Commission plans to incorporate the greenhouse gas (GHG) emissions performance standard for utility procurement adopted by the California Public Utilities Commission on Oct. 6 into the final version of its Integrated Energy Policy Report, due out in November. The performance standard states that GHG emissions levels are to be set no lower than levels achieved by a new combined-cycle natural gas turbine. In part, the performance standard aims to encourage clean coal technologies.

The CEC released its draft 2005 IEPR in mid-September and is now receiving comments on it, in addition to holding public hearings.

Earlier, in December 2004, the CPUC mandated a greenhouse adder of $8.00 to $25.00/ton of CO2 when it ordered the state's investor-owned utilities to account for climate change risk in their long-term resource procurement plans. GHG adders are intended to encourage them to invest in lower-emitting resources.

According to Mike Easley, chairman of the Wyoming Infrastructure Authority (WIA), the proposed standard would essentially bar utilities from buying electricity from coal-fired power plants because clean coal technology is years from commercial viability.

Easley said in a letter to the CEC, if adopted in its present form, the GHG standard will mean that coal will not be part of California's energy picture for the foreseeable future. The proposed GHG performance standard is highly likely to convince coal plant developers that the California market is closed for the foreseeable future and they will shift resources to more realistic investment targets, Easley said.

However, Al Pak, director of state regulatory affairs at Sempra Generation, told CEC commissioners at an Oct. 7 public hearing on the draft IEPR the company's proposed $2.5-billion 1,450-MW coal-fired Granite Fox project in northern Nevada would continue to be competitive in California with a "greenhouse adder" of $8.00/ton of CO2 emissions. He explained the adder would raise the price of energy sold by Granite Fox from $3.00 to $4.00/MWh, depending on the plant's duty cycle because the company would have to mitigate one-half of the plant's CO2 emissions.

Pak described the Granite Fox project as one of the new generation of coal-fired plants which are much more efficient that their 1960s-era counterparts. Granite Fox is still in the initial stages of permitting in Nevada and has not yet filed an application for an air permit. Pak said the economics and location of the company's coal-fired power plant make it extremely attractive to all markets west-wide, beyond the purview of the CEC and the CPUC.

When questioned by CEC Commissioner John Geesman during the hearing about increasing the cost of the greenhouse adder, Pak said $25.00/ton would be out of market. "At $8.00 we are competitive, at $25.00 we are not," he answered. Pak also said "We could not have discussions with utilities [regarding power purchase contracts] if future risk is not mitigated. A utility would need assurance the cost would be absorbed."

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