United States

United States

Five hundred megawatt agreement signed

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In a compromise move, Kenetech Windpower and Southern California Edison (SCE) have signed a preliminary agreement for a power purchase contract to install 500 MW of wind in southern California. SCE would thus pay less for the wind than under the controversial Biennial Resource Plan Update (BRPU), which SCE still wants to have suspended (Windpower Monthly, January 1994). Under the new agreement with Kenetech, wind development would be deferred compared with the timetable mandated under the BRPU.

Half of the 500 MW -- equivalent to about 100 MW of SCE firm capacity -- is subject to a voluntary green pricing agreement, while the other half is a firm purchase at Edison's marginal cost. Another 250 MW is optional, and not part of the preliminary agreement. If the agreement leads to a power purchase contract, Kenetech would now install a total of 945 MW in California, including 450 MW already given preliminary approval under the BRPU process in December.

The contract is to replace SCE's mandatory power purchase contracts under BRPU. SCE originally had to purchase 624 MW of firm capacity under the process, with 175 MW of that set aside for renewables. The new agreement with Kenetech for 500 MW is for about one-sixth of SCE's BRPU requirements. The utility maintains it currently has no need for more generating capacity.

But the status of the agreement is uncertain until the California Public Utilities Commission (CPUC) finally rules on SCE's bid to have the BRPU cancelled. The CPUC meets on April 20, after a 20-day period of public comment. The CPUC has proposed reducing by 25% the power generation subject to the BRPU process at SCE and San Diego Gas & Electric (SDG&E). The BRPU was established to determine how the state's three utilities solicit and select proposals to build new electric power plants.

"We're obviously disappointed that the commission seemed to be inclined to reduce the megawatts available by 25%," says Jan Smutny-Jones of Independent Energy Producers. He says it has been shown there is an economic need for the full amount. He also notes that SCE is not reducing its demand side management by a similar proportion.

It appears this latest "25% reduction" CPUC decision, made March 16, will not in itself impact the 500 MW of installed capacity specified under the Kenetech-SCE agreement, which also has to be approved by the CPUC. The CPUC, on March 16, also ruled to allow utilities to determine how they implement the 25% cut in power generation subject to the BRPU.

Kenetech and SCE both assert that Kenetech's 500 MW is safe, because the projects bid by Kenetech were among the lower-cost proposals. "We've basically locked ourselves into being part of the 75%," says Kenetech's Bud Grebey. Don Fellows, SCE's Qualifying Resources Manager, seems to agree: "I think they still are part of the 75%," he says. "We don't think it has any effect." IEP's Smutny-Jones, however, was not so sure. "We don't know yet. We're studying it," he said on March 18.

If approved by the CPUC, the Kenetech-SCE agreement would then be negotiated over a period of weeks or months, says SCE's Fellows. The BRPU process, which solicited some 1360 MW of power for the investor-owned utilities, has been closely watched by independent energy producers. In essence, BRPU established the first large-scale market test of the economics of various renewable energy sources. Wind -- and primarily Kenetech -- has so far fared well in the preliminary results announced in December.

The 250 MW subject to a green pricing agreement will be in accordance with the BRPU schedule, says Grebey. The second block of 250 MW would begin by 1999, which means the wind will be deferred, says SCE. An optional third block of 250 MW, to be purchased at or below marginal cost by SCE, would also be deferred, says Grebey.

Kenetech had previously announced that it would install 450 MW under rankings of projects submitted to the BRPU, to be developed by 1997 to 1999. But SCE had suspended the bidding process, and unlike Pacific Gas & Electric or SDG&E, did not give preliminary rankings to proposals. SCE was angry over so-called clever bidding by developers, partly by SeaWest Energy Systems of San Diego. Under the BRPU, preliminary approval was given to 585 MW of wind, including some 450 MW by Kenetech. California has about 1704 MW of installed wind so far.

"This agreement substantially reduces the cost impact on Edison customers and is consistent with public policy objectives of a diversified generation portfolio," says John Bryson, SCE chairman and CEO. "Clearly, this is preferable to the high cost of mandated contracts under the BRPU process. Cancellation of Edison's BRPU requirements is essential to protect our customers and the Southern California regional economy."

"The planned projects will utilise about 1500 of Kenetech's 33M-VS variable-speed turbine in projects all located in southern California. "This agreement lays the foundation for a positive long-term working relationship between Kenetech and Edison, one which we believe is in the best interest of both our organisations," says Kenetech president Gerald Alderson.

The green pricing agreement, in which the price paid would be less than the BRPU identified costs, has yet to be worked out by Kenetech and SCE, says Grebey. SCE customers would have to pay slightly higher rates in return for added benefits, says SCE. Kenetech, however, is confident that green pricing will be received favourably by southern California utility customers because of polls done in the state that show they do not mind paying more for clean power.

The price paid for the second block of 250 MW, the firm power purchase, would be somewhere between the utility's current marginal cost, $0.03/kWh and the BRPU auction price for wind, $0.057/kWh, says Grebey. The third optional block would be purchased at or below marginal cost.

In other CPUC action on March 16, the regulators also adopted a cap on the second auction price. The so-called clever bidding under the BRPU had resulted in too large a difference between bid prices and the lowest losing price in the second price auction, in which a winner is paid the price of auction's first lowest price loser.

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