Comment Log Display

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.