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CAISO board OKs must-run contracts for output of 2 NRG gas plants

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CAISO board OKs must-run contracts for output of 2 NRG gas plants

The California ISO can pursue reliability contracts for the output of two natural gas-fired plants in southern California for 2019, the grid operator's board decided July 26, just days after the region saw soaring temperatures and power prices.

The ISO has been criticized for its increasing reliance on backstop tools like reliability must-run, or RMR, contracts to ensure adequate power supply. But reforms to the state's resource adequacy program and the ISO's backstop procurement programs have been long-running and complicated.

The board's yes vote on July 26 means that the ISO can start hammering out cost-based RMR deals with the two NRG Energy Inc. plants: the 54-MW Ellwood Generating Station in Goleta, Calif., and one of the generating units at the 1,516-MW Ormond Beach Generating Station in Oxnard, Calif. Ormond unit 1 has a capacity of 741 MW and Ormond unit 2 has a capacity of 775 MW. All three of the plants began operating in the first half of the 1970s.

CAISO also expects to need these plants in 2020, Neil Millar, the ISO's executive director for infrastructure development, told the board. A transmission project and preferred resources expected to offset the need for the capacity are not going to be online until 2020 and 2021, respectively, he explained.

After NRG, CAISO and the California Public Utilities Commission agree on the RMR contracts, the U.S. Federal Energy Regulatory Commission would still need to approve the agreements. NRG can also sign bilateral agreements with load-serving entities for the plants' output under the state's resource adequacy program, and state regulators have urged Edison International subsidiary Southern California Edison Co. to do so.

Eric Eisenman of Pacific Gas and Electric Co. noted that he expressed concerns with the RMR terms and conditions last year, when the board approved RMR designation for Calpine Corp. 602-MW Metcalf Energy Center in San Jose. "The risks remain that any new RMR designations for 2019 in the PG&E footprint will continue to have terms that PG&E considers unjust and unreasonable, for example, the lack of a must-offer and the set return of 12.25%," said Eisenman, who is PG&E's director of FERC and ISO relations. Pacific Gas & Electric, or PG&E, is a subsidiary of PG&E Corp.

PG&E, CAISO and Calpine ended up negotiating 2018 RMR contracts with a must-offer obligation for Metcalf, as well as for Calpine's Feather River Energy Center and Yuba City Energy Center. The must-offer obligation and other changes to the plants' status were expected to boost reliability and lower market prices.

On July 26, PG&E urged action on the issue. "PG&E asks the CAISO have urgency, a lot of urgency, to complete the needed changes to the RMR process, terms and conditions, sooner rather than later," Eisenman said.

Extending must-run contracts

CAISO does not expect to need to extend the Metcalf contract into 2019, but it does see a need for the 47-MW Feather River and 47-MW Yuba City contracts next year, ISO spokesman Steven Greenlee said. Both plants are in Sutter County, Calif. The grid operator also expects to need to extend the RMR contract for Dynegy Inc.'s 165-MW oil-fired Oakland plant, Greenlee said.

CAISO staff said that the grid operator is working on holistic changes to its capacity procurement mechanism and the RMR process, which should be ready for board consideration in March 2019, but added that it is not realistic to expect RMR changes sooner because many issues are interdependent and controversial. And FERC has shown tremendous opposition to piecemeal fixes to the ISO's backstop procurement programs, staff noted.

Kate Winston is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.