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Planning California’s Clean Electric Power Future

huard, david, manattOver the next several years, California’s power system will undergo major changes. As renewable portfolio standards (RPS) increase, larger quantities of renewable generation resources will be required. Simultaneously, the unplanned retirement of the San Onofre Nuclear Generating Station (“SONGS”) and the required phase out of all “once through cooling” (“OTC”) gas-fired generation units on the State’s coast will represent a loss of nearly 3.5GW of power in Southern California alone. These shifts could threaten system reliability and increase electric rates. To avoid or limit such consequences, utilities will need to broaden their current approach to renewable resource procurement; a process now underway at the California Public Utilities Commission for investor-owned utilities.

Historically, the power market has been dominated by large, often remote, projects that utilities built to achieve economies of scale and to provide low-cost energy to rapidly growing population centers. Although large projects necessitated substantial capital expenditures and, often, investments in new transmission infrastructure, the resulting benefits in long-term power cost-savings and system reliability proved worthwhile.

California would be wise to invest in renewable generation in the same fashion. To acquire the lowest cost renewable energy resources, California will need to import large-scale resources from out-of-state, at least in part. State utilities should invest in resources that are “best in class” – with high net capacity factors and potential to be built at economies of scale. While local distributed generation, demand response, storage, and energy efficiency (“smart grid”) will be part of any long-term solution, these resources are not yet sufficiently reliable, available, or large enough to replace significant portions of merchant generation.  In addition to upgrading local grids, utilities will need to develop smarter long distance transmission planning and a coordinated, regional approach integrating new and existing assets.

California utilities must also develop portfolios that manage peaks in net load by combining diverse, but complementary renewable resources. For example, growing quantities of solar will result in a net load peak during the evening. By importing wind energy from the Great Plains, which blows more consistently throughout the day and provides power in the evening, utilities can reduce problematic system variability. Similarly, new thermal generation should be designed to facilitate integration of additional renewable sources by firming and shaping variable resources both locally and at points along the long-distance transmission systems to reduce stress on the local grid.  Finally, California utilities must employ longer-term planning (beyond the traditional five to seven years) to effectively create a power system which is reliable, affordable, and supported by large quantities of renewables over the long-term.

The publicly-owned Los Angeles Department of Water and Power (“LADWP”) faces these planning issues directly.  LADWP must replace over 70% of its power supply over the next 10 years to comply with state OTC regulations, meet future RPS standards, and replace coal-fired generation.  Among these challenges, the replacement of the Intermountain Power Project (IPP) in Utah, which provides LADWP up to 1200 MW of coal power, will have perhaps the greatest impact on the utility’s system.  In early 2013, LADWP announced it would cease imports from IPP two years early, by negotiating a renewal agreement for gas-fired power at IPP. This renewal agreement is still pending and now is the time to conduct a deeper assessment of the options at IPP.

Currently, LADWP has an opportunity to replace IPP by transforming the site into an energy hub to import best-in-class renewable and flexible thermal (peaking) resources. The western states are home to some of the best solar, geothermal, and wind generation resources in the country. For example, wind energy in eastern Wyoming has a capacity factor near 50%, an attribute which drives down delivered price compared to other renewable energy projects currently serving California.

By developing the IPP site as an energy hub, LADWP can encourage the development of complementary renewable and flexible energy resources to reduce variability, particularly that caused by solar PV, without relying as heavily on fossil fuel resources.

Additionally, Los Angeles should consider how it might use existing transmission assets and IPP to access high-quality, large scale renewables to benefit the Southern California region, provide cost savings for its ratepayers, while avoiding curtailment issues. LADWP could sell excess power into the CAISO on the spot market, or through a bilateral contract with a neighboring IOU facing an RPS shortage. Unfortunately, LADWP’s current plan for repowering IPP with gas-fired generation will result in utilization of only 40-70% of the transmission line which connects IPP to Los Angeles. The utility must not lose the opportunity to invest in a balanced, long-term energy solution.

In fact, due to the importance of IPP to LA’s power transformation, the Los Angeles City Council, at the behest of the new Ratepayer Advocate has formally requested that LADWP address alternatives to the utility’s current plan for IPP. This longer-term approach to resource planning for IPP should be carried forward to LADWP’s system-wide resource planning, which has typically employed much shorter time horizons. The pending reports on IPP will undoubtedly demonstrate that LADWP has a tremendous opportunity to turn the retirement of a coal plant into a smart plan for the city’s power system.

LADWP provides a prime example of how California utilities and regulators must conduct longer-term resource planning and apply a regional scope in order to identify best-in-class resources.  Only then will California be on track to create an affordable, reliable, and clean energy future.

David Huard is Chair of the Energy, Environment & Natural Resources practice at law firm Manatt, Phelps & Phillips, practicing in the Los Angeles and San Francisco offices. He is also the partner responsible for the firm’s Climate Change Solutions group and the Solar and Renewables Project Development team. Mr. Huard can be reached at (415) 291-7430 or dhuard@manatt.com.

This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. Earlier columns in the third edition of this series discussed the Environmental Impact of Online-Enabled Transportation Services, California’s Green Chemistry Regulations, Retail Hazardous Waste Reform, Environmental Screening Tools, Nanotechnology Regulation, Federal Chemical Regulation Reform, Efforts to Address Climate Change and What the Sequester Means for Environmental Regulation

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