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California PUC to look at key Moss Landing power contract

Southern California Edison is up for approval at the June 12 California Public Utilities Commission meeting of a bilaterally negotiated Resource Adequacy capacity and energy-only tolling agreement (“DML Contract”) with Dynegy Moss Landing LLC.

The DML Contract would provide the Edison International (NYSE:EIX) subsidiary with energy, capacity, ancillary services, and all RA benefits in calendar 2016 via a capacity and energy-only tolling arrangement for Moss Landing Units 6 and 7.

In May 2012, Southern California Edison (SCE) terminated the following contracts pursuant to early termination provisions in each that had been triggered by the November 2011 bankruptcy of Dynegy Holdings, an affiliate of Dynegy Morro Bay LLC and Dynegy Moss Landing LLC: A contract with Dynegy Morro Bay executed in 2007 that was for RA and energy-only tolling capacity of 325 MW each, from Dynegy Morro Bay Units 3 and 4, to be delivered between January 2012 and September 2013. A contract with Dynegy Moss Landing executed in October 2010 that was for RA capacity of various quantities from Units 1 and 2 of the Moss Landing facility, to be delivered between January 2012 and September 2013.

This contract is the result of a litigation settlement

Dynegy Morro Bay and Dynegy Moss Landing disputed the validity of the terminations and initiated litigation against SCE, seeking substantial collective damages, noted a draft resolution up for a commission vote on June 12. In October 2013, SCE and Dynegy reached an agreement to resolve the litigation through two power purchase agreements – the DML Contract and another transaction. Because of these two transactions, Dynegy has dismissed its litigation against SCE with prejudice.

The first transaction (called the “ERRA Transaction”) is a contract providing SCE with energy-only tolling capacity for the entire output of Units 6 and 7 for every month of 2014 and 2015, and with RA capacity for one or both units for specific months throughout 2014 and 2015.

The DML Contract for which SCE seeks commission approval provides SCE with energy-only tolling capacity for the entire output of Units 6 and 7 for every month of 2016, and with RA capacity for one or both units for certain months throughout 2016. SCE is only purchasing a portion of the RA available from Units 6 and 7 for months in January and April through December (750 MW or 1,500 MW) and 0 MW in February and March. SCE is, however, purchasing the entire energy-only tolling capacity from both units (1,509 MW) for all 12 months in 2016.

Tolling agreements typically provide the buyer with the rights to all of the energy producing capability of the unit as well as all of the unit’s flexibility to offer ancillary services (e.g., spinning reserves, non-spinning reserves, automatic generation control). In exchange for these rights, the buyer typically pays the seller a monthly capacity payment.

Moss Landing units impacted by OTC law

The commission previously directed that any power purchase agreement with a plant covered by the state’s once-through cooling (OTC) phase-out law that terminates one year or less prior to the applicable OTC compliance deadline must be submitted to the commission for approval via a Tier 3 advice letter. Moss Landing Units 6 and 7 have an OTC compliance deadline of Dec. 31, 2017. The DML contract ends on Dec. 31, 2016, one year prior to the OTC deadline. Therefore, SCE sought approval of the DML contract through a Tier 3 advice letter.

According to SCE, the DML Contract facilitates compliance with OTC policy by providing funding for impingement and entrainment studies that are required to be completed prior to the final compliance date.

Specifically, the utility said that “The Transaction will also help facilitate compliance with the OTC policy by providing funding, in part, for the evaluation and testing of alternative measures, including both operational and technological controls that will enable the plant to achieve compliance with the [State Water Resources Control Board] OTC policy impingement and entrainment reduction standards by the final compliance deadline.”

This article was republished with permission from GenerationHub.