Building power plants in California hard, even in time of need


LOS ANGELES, Calif., Nov. 25, 2000 (Bloomberg) — For Thomas Barnett of Constellation Energy Group, 25 empty acres of California desert symbolize his frustration with a state that wants both more electricity and less development.

It’s on that vacant parcel in Victorville, 90 miles north of Los Angeles, that Constellation proposed building the $350 million High Desert Power Project in 1995. The generating plant would produce 750 megawatts of power, enough to light 750,000 homes.

Five years later, ground has yet to be broken as local and state regulators review and re-review requests for permits.

“I’ve been involved in the development of projects in at least a dozen states,” said Barnett, High Desert’s manager. “And California is easily the most difficult.”

The state needs High Desert, and other proposed power plants. A shortage of generators and high demand for air conditioning sent electricity prices soaring during this year’s hottest months.

Barnett and other power-plant developers say they saw the shortage coming. Because of a complicated, time-consuming permitting process on the state and local levels, California hasn’t allowed a major power plant to be built in more than a decade.

“Arizona, Nevada, Oregon — everyone’s putting power plants in around you, but no one will put it in California,” said Stephen Bergstrom, president of power producer Dynegy Inc. “That ought to tell you something.”

Fewer Imports
Wholesale power prices in California more than quadrupled in June, July and August from the same period last year, estimates PG&E Corp., the San Francisco-based owner of the state’s largest electric utility.

To avert statewide blackouts, the California Independent System Operator, the nonprofit agency that runs 75 percent of the state’s transmission grid, asked utilities more than a dozen times this year to cut power to some customers. The state has even had power shortages this November, a month when demand is normally slow.

Power producers, analysts and others point to several reasons for the crunch: high prices for the natural gas that fires many power plants, demand from technology companies for their computer networks, and design flaws in California’s electricity market, which is being deregulated.

They also blame a lack of new power plants in the state. While California’s power supply has been almost stagnant, Texas added 4,000 megawatts of production — enough electricity to light 4 million average U.S. homes — from June through September alone, Dynegy’s Bergstrom said.

At the same time, California can’t import as much electricity as it once did from states such as Nevada, Arizona and Oregon, which are keeping more power for their own expanding populations. On this year’s hottest days, California imported about 2,000 fewer megawatts than two years ago, said Jan Smutny-Jones, executive director of Independent Energy Producers.

“A lot of resources we used to depend on are gone,” said Smutny-Jones, whose group represents about 50 power producers.

Speeding Permits
Dynegy, based in Houston, isn’t building or increasing the size of any plants in California, Bergstrom said. “We’ve delayed any expansions . . . until the regulations get resolved,” he said.

In August, Governor Gray Davis ordered state regulators to speed up permits for the construction of new power plants. In September, Davis signed Assembly Bill 970. It aims to streamline permitting for both temporary “peaking” plants — which operate only when power reserves are low — and permanent plants.

The bill requires the California Energy Commission to establish a six-month process for approving permanent plants that it determines won’t do significant harm to the environment. That process now takes a year or more.

“We were able to craft something that we hope would produce more power,” said Assemblywoman Denise Moreno Ducheney, a Democrat from National City, California, who co-wrote the bill.

The problem, Bergstrom said, is the bill requires that a project be environmentally sound without defining what that means. “The reality is that nothing will qualify,” he said.

And Constellation’s Barnett said he doubts that state regulators can speed up approvals with “the stroke of a pen.”

“Either regulators were sitting around doing nothing and can now speed up the process, or they are now not going to pay attention to everything,” Barnett said. “I don’t think either of those is right.”

Even if improvements are made at the state level, power-plant developers say local opposition will still exist.

California, they say, is more of a NIMBY — “not in my backyard” — state than Arizona, Texas or Nevada. Almost all power-plant construction or expansion in populated areas is fought by at least one environmental or community group, they say.

“Local issues have much more often been the problem in California than the state regulatory or state approval process,” said Scott Gardner, a project manager with AES Pacific, the West Coast arm of AES Corp. the No. 1 U.S. power-plant developer.

The state’s energy commission, meanwhile, has been reluctant to use its authority to override local governments and approve power plants.

In San Jose, Calpine Corp. faces opposition to its 600- megawatt Metcalf Energy Center. One foe is Cisco Systems Inc., the world’s No. 1 maker of computer-networking equipment, which wants to build a corporate campus adjacent to the proposed Metcalf site.

In Morro Bay, on the coast between Los Angeles and San Francisco, opponents of a Duke Energy Corp. plant expansion plan put a measure on the November ballot that would have given voters, instead of the city council, final say on the project.

The measure was defeated by a 54 percent to 46 percent margin. Duke spokesman Tom Williams said the measure was the first of its kind in California.

Some Succeeding
Even given such opposition, plants are being built in California. PG&E’s National Energy Group unit plans to begin operating its 1,048-megawatt La Paloma Generating Project in Kern County next year. Southern Energy Inc., a power-plant company controlled by Southern Co., is looking to expand plants in Contra Costa County and San Francisco.

Calpine plans to start up its 545-megawatt Sutter Power Project in Sutter County and 500-megawatt Los Medanos Energy Center in Contra Costa no later than August.

Calpine also is developing Delta Energy Center, an 880- megawatt plant planned for Contra Costa. That plant is a joint venture with Bechtel Group Inc., the second-largest U.S. construction company, and is scheduled for a May 2002 start. Calpine says getting the plant up and running has not been easy.

“California is one of the largest lead-time states we do business in, and we do business in 27 states,” said Jake Rudisill, Calpine’s senior vice president for the Western region. “We typically plan for a three-year period between gestation and final permitting (in California), and that’s before we can start construction.”

That’s why many plants in California are planned for less- populous areas such as Kern County, where time-consuming opposition wouldn’t be as strong.

“The plants getting approved right now are in the middle of the desert, or fairly remote areas,” AES’s Gardner said. To make new power plants efficient and economical, they will need to be near populous, energy-hungry areas such as Los Angeles, San Diego and San Francisco, he said.

Attitudes aren’t likely to change, though, even if power shortages worsen next year as expected, said Mike Florio, a member of California grid operator’s board and a senior attorney with the consumer group Utility Reform Network.

“If we’re going to use the juice,” he said, “we’re going to have to put up with the fact that it’s got to come from somewhere.”

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