Report: CA Utilities Signing Expensive Clean Power Contracts

The report, released by the Division of Ratepayer Advocates (DRA) last Friday, says 59 percent of the contracts signed by the state’s three largest utilities are priced above the market price referent (MPR), which is a yardstick used by the California Public Utilities Commission (CPUC) in reviewing the contracts. The MPR takes into account the costs of building, operating and maintaining a 500-megawatt combined cycle natural power plant. The more expensive contracts have prices that on average are 15 percent higher than the MPR.

The report looks at the contracts signed by the utilities from 2002 to 2010 in order to meet the state’s 2010 mandate called renewables portfolio standard (RPS) to get 20 percent of their electricity from renewable sources. The portion needs to climb to 33 percent by 2020. The contracts analyzed by the DRA include ones with power plants already in operation as well as projects that haven’t yet been constructed.

California has set aside funds to allow utilities to sign contracts above the MPR because regulators understand that renewable electricity is more expensive. It’s a price that the public will have to pay to use clean power that is better for the environment. The CPUC publishes the MPR and notes whether each contract it’s approved is below or above the MPR. But it doesn’t divulge the actual pricing for each contract.

The DRA contends in its report that the CPUC hasn’t done a good job scrutinizing contracts to make sure they aren’t unreasonably high and won’t saddle consumers with hefty bills. It notes that the CPUC has rejected only two out of the 184 it has reviewed. Many of these contracts are for power plants that haven’t yet been built, so the actual impact on consumers isn’t known.

The CPUC “has approved nearly every renewable contract filed by the utilities, even when contracts rate poorly on least-cost, best fit criteria,” the report says.

The report goes on to say that utilities and the CPUC give too much weight on whether developers can complete and deliver their projects and not enough on the projects’ costs to the public. It notes that the utilities have signed enough contracts to meet the state goals, so there is no good reason to accept super expensive contracts to ensure that the goals are met.

Not all proposed projects get built, of course, and the expensive contracts reflect the early stages of clean energy development. The California Energy Commission has found that 14 percent of the contracts have failed to deliver while 15 percent have been delayed, the report said. The 14 percent failure rate isn’t so high, the DRA notes in the report. The number could climb because of some of the proposed projects are so large that lining up permits and financing will be difficult.

The three utilities, Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric, have been signing lots of power purchase agreements. Some of the contracts involved mega projects of hundreds of megawatts each, and those projects have stirred up controversy for their impact on the environment and local communities.  A few of them already have attracted lawsuits or threats of legal challenges.

PG&E has signed more contracts that are priced above the MPR than other utilities. Of the ones PG&E has signed, 77 percent of them are above the MPR. Edison and SDG&E’s shares are less than 50 percent. A PG&E spokesman told the San Francisco Chronicle the utility is committed to pay more because many of the contracts are for solar electricity, which can be expensive than some other sources.

The DRA wants the CPUC to be more selective in approving contracts. Its  recommendations include setting a pricing limit annually and requiring utilities that submit especially expensive contracts -- those that are $100 million more than the MPR-based prices -- to go through a lengthier review process.

DRA adds that the public also should be given easier access to information on how much these renewable electricity contracts are costing so far and will likely cost for the next 10 years, and the progress the utilities are making to meet the state mandates. The CPUC should require the utilities to report that information, DRA says.

“DRA supports the RPS program and cost-effective renewables. However, DRA is concerned that the perceived urgency to comply with the RPS and continuing CPUC approval of high-priced contracts has created an inelastic demand and subsequently driven the renewable market to yield very high prices,” the report says.