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Calif. staff recommends denying NRG gas-fired peaker contract with SoCalEd

TheCalifornia Public Utilities Commission staff on April 26 to deny a contract betweenSouthern California Edison Co.and NRG Energy Inc.for the 130-MW gas-fired Mandalayunit 3 peaker in Oxnard, Calif.

ThePUC Energy Division staff's proposed resolution is for the commission to onlyapprove the Edison Internationalutility's smaller and shorter contract with NRG for the 54-MW peaker in Goleta, Calif.

SoCalEdand NRG's GenOn Energy Management LLC subsidiary bilaterally negotiatedresource adequacy contracts for both peaking units. The Mandalayunit 3 contract was to cover a term from Aug. 1 through May 31, 2020. TheEllwood contract would extend from Aug. 1 through May 31, 2018.The plants were built in 1970 and 1974, respectively.

Thecommission staff agreed the Ellwood peaker is needed to cure a resourcedeficiency in the Santa Clara, Calif., sub-area. The peaker also serves localload in Santa Barbara County, Calif., area and would help meetlocal reliability needs in the event of a transmission outage. The staff found,however that there is no need for the Mandalay peaker if the Ellwood peakergoes forward.

Oxnardis a hotbed of environmental opposition to gas-fired generation. SoCalEd hasasked for approval of a 20-year contract with NRG for its 262-MW unit 4, but thePUC is considering whether to putoff a decision on that contract until the California EnergyCommission completes an environmental review. Protesters haverepeatedly told the commissioners they do not want another plant in theircommunity.

ThePUC has yet to take action on its draft decision on unit 4, but held a workshopon March 28. NRG argued that deferring consideration for that review woulddelay the project's approval for years, according to a notice of ex partecommunication between NRG officials and advisors of two commissioners.

NRGplans to retire atotal of 430 MW comprising MandalayGenerating Station units 1 and 2 in 2020 due to California'sone-through-cooling curtailment regulations and wants to replace them withMandalay/Puente unit 4.

Asfor the Mandalay unit 3 and Ellwood generators, SoCalEd said it needs bothcontracts based on the CaliforniaISO's notice of resource deficiency in an area around Ventura,Calif., and concerns it has about reliability in Santa Barbara, Calif., areabecause it is served by two 230-kV transmission lines located on ruggedmountain terrain vulnerable to damage from mudslides and earthquakes.

However,the Sierra Club argued the proposed contracts are collectively well in excessof the 42-MW deficiency identified by the ISO and questioned the grid operator'srationale that "significant and costly over procurement" of theMandalay peaker is needed to cure the ISO's projected deficiency of 88 MW by2020.

TheSierra Club also pointed to a California Energy Commission analysis showingdeclining load in the Ventura area on the north side of Oxnard.

ThePUC's Office of Ratepayer Advocates also advised against the Mandalay contract,saying the price is unreasonably high compared to current market pricing andthat the ISO has drafted another study pointing to a decline in future localcapacity requirements.

ThePUC staff agreed the Mandalay unit 3 contract does not appear to be neededsince, in addition to the Ellwood contract, the ISO's study for 2017 shows acapacity decrease of 20 MW and if the 230-kV lines are lost SoCalEd can reroutesome power through its 66-KV system.

ThePUC acknowledged the ISO wanted to keep the Mandalay 3 unit available as it maybe needed in 2020, but said nothing precludes NRG from participating in SoCalEdsolicitations to meet needs for 2017 and beyond.