Regulators deny two of three San Diego utility power contracts

March 21 Thu Mar 21, 2013 7:02pm EDT

March 21 (Reuters) - California utility regulators denied two of three power purchase agreements sought by San Diego Gas & Electric (SDG&E) on Thursday, sparking criticism from the company that the uncertainty over the future operation of the damaged San Onofre nuclear station should have been taken into account.

San Onofre has been shut for more than a year.

The California Public Utility Commission (PUC) approved one request from SDG&E, a unit of Sempra Energy, to enter a 25-year contract with the Escondido Energy Center, a 45-megawatt repowering project.

The PUC denied SDG&E's request to enter similar purchase power contracts with the Pio Pico Energy Center and Quail Brush Power, citing a mismatch between the 2014 starting dates for the contracts and the utility's lack of demonstrated need for additional power before 2018.

SDG&E said it was disappointed with the PUC decision. "Both were local peaking facility projects that resulted from a competitive solicitation process and are needed to provide local reliability," it said in a statement.

"Peaking" power plants can start up quickly to supply power during periods of high demand or to back-stop renewable power from solar and wind facilities.

SDG&E said the commission recognized its need for local generation, but disagreed with the timing.

"The uncertainty surrounding the operation of the San Onofre Nuclear Generating facility suggests that an earlier start date of these facilities would provide added power supply insurance for the region," SDG&E said.

The utility said it identified a need for up to 450 Mw of peaking power in May 2011, eight months before the San Onofre nuclear units shut. The PUC has reduced that amount to about 350 MW with Thursday's action.

"The evidence supporting the need for Pio Pico and Quail Brush is inconclusive, and SDG&E's customers should not be made to pay until it is conclusive," commissioner Mike Florio said.

On Wednesday, the California grid operator warned that the ongoing San Onofre outage will make it more difficult to avoid rolling outages this summer than last.

Grid officials said they will need to rely heavily on voluntary conservation by electric customers in south Orange County and San Diego to keep the lights on.

The San Diego area has limited local generation and relies on imports of electricity from outside the state, officials have said.

The utility said its effort to meet California's 33 percent renewable mandate by 2020 requires back-up generation to operate when solar and wind resources are not available.

SDG&E said just over 20 percent of its retail sales came from renewable resources in 2012, up from 11.9 percent the previous year.

The PUC directed SDG&E to issue new solicitations for an additional 298 MW, submit a revised request with a 2018 timeline or demonstrate a need for the contracts that were denied.

The PUC said it approved the Escondido contract due to the project's relative low cost, small size and the environmental benefit.

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