First Name | Carla |
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Last Name | Banks |
Email Address | carla.banks@rocklandcapital.com |
Affiliation | |
Subject | Existing contracts with no carbon cost pass-through |
Comment | La Paloma Generating Company (La Paloma) owns and operates a 1,020 MW natural gas combined cycle generating facility in McKittrick, CA. La Paloma supports the development and implementation of a cap and trade program as a means of achieving emission reductions under Assembly Bill 32 (AB32). Further, La Paloma appreciates the opportunity to provide comments to the California Air Resources Board (CARB) on its Modified Regulation Order for a California Greenhouse Gas Cap and Trade Program (MRO), because we are concerned that certain issues are not being adequately addressed. Our predominant concern focuses on the lack of assistance for generators with long-term contracts that do not provide for full pass-through of carbon costs. La Paloma has a fixed price power contract that was signed in 2005 with a non-utility, trading group. This contract does not address carbon costs and does not provide for any means of La Paloma recovering the costs of carbon associated with cap-and-trade. The terms of our contract cover 240 MW (one of the four units at La Paloma) for 2013-2017, and the dispatch of that unit is driven by our contract counterparty. The total cost of carbon to La Paloma obviously depends on the final price of carbon in the market, but with a minimum price of carbon of $10/ton we will experience additional costs of at least $5.8 MM per year. The CARB staff has suggested that bilateral contract negotiations would be the preferred method to handle this issue. However, for contracts with a non- IOU as the Purchaser of power for the contract there is no pressure on the Purchaser to renegotiate, particularly if the Purchaser has an advantage over the market pricing. Therefore, we believe that CARB needs to directly address in the regulation how to assist the independent power producers that cannot pass through carbon costs in existing contracts. Other sectors, including utilities and industrial entities, are provided a direct allocation of allowances, and independent power producers should have at least equal treatment. Without equal treatment for the independent power producers, it would appear as if the implementation of AB32 discriminates against a limited subset of generators. Recognizing that there is not a single solution that will address each of these types of contracts, La Paloma is open to a variety of solutions. The direct allocation of allowances to power producers with these existing contracts is the most straightforward solution, and as a member of the Western Power Trading Forum, La Paloma supports their comments regarding allowance allocation for this situation. Other solutions that redirect the obligation for carbon cost to the Purchaser of power in these contracts would also accomplish the goal. Regardless of the final methodology, it is essential that CARB address the existence of these contracts and the financial burden they place on the power producers involved in them. |
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Date and Time Comment Was Submitted | 2011-08-11 16:46:13 |
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