Reliant Offers to Slash Prices if Rules Waived
A Houston-based energy wholesaler singled out by Gov. Gray Davis for charging sky-high amounts offered on Wednesday to slash prices 80% if air pollution regulators waive certain rules.
Reliant Energy, owner of five Southern California power plants, told top state energy and environmental officials that a boost in the number of hours its power plants can run would allow the company to drop its bids from between $1,500 and $1,900 per megawatt-hour to $150 to $250 per megawatt-hour.
Three of the company’s power plants can run only a limited number of hours each year under air pollution rules designed to reduce smog.
In a letter to Davis’ energy advisors, company Vice President John Stout proposed that the state not subtract from Reliant’s allotted hours whenever its plants are ordered to run by state grid operators, who buy power on an emergency basis to prevent uncontrolled blackouts.
“Right now when we are called upon by the state to run these units, it’s eating away the hours of run time that we were counting on,” said Stout.
“That’s what causes us to bid in the high prices,” he said, “because we ultimately think we’re going to have to go out and buy replacement power in the spot market later this summer to make up for the hours that get eaten up in the spring or early summer by these emergency dispatches by the state.”
Earlier this month, the state power buyers paid Reliant $1,900 per megawatt-hour, several times recent market prices, to avoid blackouts on a hot afternoon. Davis complained publicly, naming the price and the seller--information that grid operators are supposed to keep confidential under federal rules.
Davis spokesman Roger Salazar said the governor will evaluate Reliant’s latest offer carefully.
But Southern California air pollution regulators said they already have relaxed Reliant’s regulations or offered to do so months ago.
“We’re not sure of the logic behind Reliant’s proposal,” said Doug Allard, top regulator at the Santa Barbara County Air Pollution Control District. “The implication seems to be that air quality mitigation is contributing substantially to the cost of power. We find that impossible to believe.”
Allard said his staff has been ready since last August to amend a permit that allows Reliant’s small power plant near Goleta to run 200 hours a year. He said the district offered to add 500 hours of operation time each year with no strings attached.
That is possible, Allard said, because a 1991 test of the plant’s pollution concluded that it released only one-third as much nitrogen oxide--a precursor to smog--as regulators believed when they wrote the permit years ago.
Ventura County air pollution control officer Dick Baldwin, who regulates two plants owned by Reliant, said the company seems to want to be able to produce more electricity to sell on the spot market--where prices can soar--in exchange for giving the state a break on the electricity it is ordered to sell during emergencies.
