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CAISO sees need for must-run contracts with 2 NRG gas plants for 2019

The California ISO plans to seek reliability must-run contracts with two gas-fired power plants in California to meet local capacity needs in 2019, the grid operator told state regulators in a new analysis.

The plan comes as regulators and stakeholders have urged the grid operator to overhaul its approach to reliability so it does not need to lean so heavily on these types of contracts.

Specifically, CAISO said there is a local capacity need to retain the 54-MW Ellwood Generating Station in Goleta, Calif., and one of the units at the 1,516-MW Ormond Beach Generating Station in Oxnard, Calif., both owned by NRG Energy Inc. Earlier this year, NRG California South LP announced that it was going to retire the two plants before the 2019 resource adequacy year. As a result, CAISO plans to seek a reliability must-run, or RMR, designation for the plants at the grid operator's board of governors meeting in July.

CAISO outlined its plan in its resource adequacy analyses for 2019, which it released May 15 and sent to the California Public Utilities Commission. The ISO and PUC jointly administer the resource adequacy program, which requires load-serving entities to procure capacity to meet their forecast peak load plus a reserve margin, as outlined by the PUC. The program also requires load-serving entities to procure local and flexible capacity, as determined by the ISO.

CAISO is increasingly relying on RMR contracts to ensure reliability. This year, the grid operator signed RMR deals with a Dynegy Inc. oil-fired plant in Oakland and with three of Calpine Corp.'s natural gas-fired plants in the state.

As renewable resources come online and existing power plants consider retirements, the ISO has been considering changes to its various reliability mechanisms. The Federal Energy Regulatory Commission recently urged CAISO to take a holistic approach to deal with power plant retirements, including revisiting the RMR tool and the risk-of-retirement provision of its capacity procurement mechanism.

NRG units are needed for reliability

CAISO's recent proposal about the NRG plants shows that it expects to continue to use the RMR tool in the near term. The grid operator noted that the reliability needs in these local areas cannot be addressed with other alternatives in time for the 2019 calendar year.

Ellwood is needed in the Santa Clara subarea, CAISO said. "In order to facilitate Ellwood's retirement, the long-term solution is for LSEs to acquire new preferred resources," the grid operator said, noting that local utility Southern California Edison Co., a subsidiary of Edison International, has a request for offers underway.

One unit at Ormond Beach will be needed until the planned Moorpark-Pardee#4 230-kV transmission project is in service, scheduled for Dec. 31, 2020, the grid operator said. Ormond unit 1 has a capacity of 741 MW, and Ormond unit 2 has a capacity of 775 MW.

Sierra Club sees must-run deals as short-term necessary evil

The Sierra Club is one of the stakeholders urging improvements to the resource adequacy process at the PUC as well as improvements in the ISO's processes. RMR contracts are a necessary evil because they are an expensive way to meet reliability needs in the short term, said Katie Ramsey, a staff attorney at the Sierra Club.

These contracts also show that renewables and other cleaner alternatives are beating out gas plants in the market, making it harder for gas plants to stay in operation, Ramsey said.

"Sierra Club sees each new RMR contract as a fresh opportunity for regulators, utilities and stakeholders to investigate whether there are cleaner alternatives than these gas plants to meet local reliability needs for a lower price," she said. "This is especially true for Ormond Beach, because it's located in an area where nearby communities are already heavily burdened by pollution, so clean alternatives should be thoroughly considered as a replacement."

The details of the RMRs are still being worked out, ISO spokesman Steven Greenlee said.

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