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Calpine, PG&E disagree over reliability contract for Calif. plant

The California ISO should "tread extremely cautiously" before giving a Bay Area power plant owned by Calpine Corp. reliability must-run status, Pacific Gas and Electric Co. said.

Citing the lack of a future capacity contract and an upcoming maintenance project expected to cost more than $20 million, Calpine in June told the grid operator it was considering whether to make the gas-fired Metcalf Energy Center unavailable for CAISO dispatch in 2018. The company asked CAISO to determine whether loss of the plant would have negative reliability impacts.

A CAISO analysis indicated that the plant is needed for reliability, and the grid operator might give the Metcalf plant reliability must-run, or RMR, designation. This is something Calpine favors and PG&E opposes, according to comments filed with CAISO on Oct. 6.

"The use of the backstop procurement authority under the RMR provisions of the CAISO tariff is the most appropriate mechanism to secure the ongoing operation of Metcalf at this time," Calpine said in remarks filed after a Sept. 26 call on the issue.

According to S&P Global Market Intelligence data, the three-unit Metcalf Energy Center came online in 2005 and has an operating capacity of 596.9 MW.

In its comments to CAISO, PG&E said the plant plays an important role in ensuring reliability in parts of its service territory. But the utility argued that RMR designation should only be used when other ways to procure needed capacity have already been used.

California's resource adequacy process, for instance, gives state regulators the initial role in allocating local resource adequacy, or RA, requirements within the service territories of investor-owned utilities, with load-serving entities procuring and showing RA capacity for those needs, PG&E said.

PG&E said the process for the 2018 RA year is going on until the end of October. Once that process is complete, the grid operator can then procure additional capacity, on a backstop basis, for any identified deficiency, PG&E said.

"By jumping directly to the RMR designation, the CAISO is bypassing the RA process and will distort the bilateral capacity market," the utility said.

PG&E said CAISO needs to better explain why it is seeking the RMR designation without first following an existing process for handling insufficient capacity to meet local needs through its capacity procurement mechanism, or CPM, authority.

"The CAISO should justify why a non-market solution is preferred in this case, as the likely result will be a procurement process that is more expensive for customers and sends a dangerous signal to other financially distressed resources in the market," the PG&E Corp. subsidiary said.

PG&E said other generators could threaten retirement once their resource adequacy contracts expire in order to get "pre-emptive RMR treatment."

But Calpine said the CPM process will not work for Metcalf and reminded the grid operator that it has already said it will not pursue CPM designation.

"Most simply put, CPM allows no runway for the complicated and time-consuming decisions required for asset disposition," the company said.

An RMR agreement, however, is the right tool to make sure Metcalf is available as needed in 2018, Calpine said.

CAISO's board of governors could make a decision on the proposal in November.