In early February, Western GeoPower (WGP) announced its termination of a 20-year geothermal power purchase agreement (PPA) with Pacific Gas and Electric Co. (PG&E). A WGP press release explains that the company terminated the agreement because a regulatory approval condition had not been obtained within a 180-day time period stipulated in the PPA.
WGP’s CEO, Kenneth MacLeod, acknowledged in California Energy Markets, an energy trade publication, that increased prices for renewable power had made the PPA “less attractive” and that the ability to execute a new PPA at a higher price was in the company’s best economic interest. In the same article, a spokesperson for the California Public Utilities Commission (CPUC) characterized WGP as motivated by “greed.” The CPUC spokesperson was also quoted as saying that, while “legal,” WGP’s conduct was “a clear example of a seller using market power.”
What are the policy implications of this episode? Should it be, as the CPUC intimates, chalked up as an abuse by a “greedy” generator, or does it highlight a “major disconnect” in the pursuit of renewable power?
Timely action required
CPUC-mandated terms and conditions in every California renewable PPA include the right of each party to terminate if “final and nonappealable” regulatory approval is not obtained within 180 days. This condition requires, at a minimum, that the CPUC first issue a final decision approving a PPA and also that the 30-day period for seeking rehearing expire. In WGP’s case, the CPUC issued a decision approving the PPA, but the period for seeking rehearing had not expired within the 180 days. Accordingly, even the CPUC spokesperson recognized that WGP had the absolute legal right to terminate the PPA.
Contrary to the CPUC’s claim, WGP’s termination was not an exercise of “market power.” WGP did not insist upon the final and nonappealable condition in the PPA, looking for an out if prices were to rise. On the contrary, the CPUC itself mandated the final and nonappealable provision. Moreover, by committing to the PPA, WGP ceded all market power; it was obligated to abstain from any market participation for the 180-day period. All “power” during this window resided with PG&E and the CPUC. They could lock in the PPA price for the full 20-year term—yet they failed to do so.
Email
Comments
Print
Reuse
