How can regulated utilities create value? Each of five key options present their own risks. Which way should management go?
The CEO Forum: The Ultimate CEOs: Peter A. Darbee
Chairman, President, and CEO, PG&E Corp.
Fortnightly: How do current emission restrictions limit your options for plant development in California? Will coal ever be an option?
Darbee: The view right now that we have is that we can’t envision doing any coal in California from a philosophical or conceptual standpoint. What has been discussed is the possibility of integrated gasification combined-cycle (IGCC) outside of California so long as it delivers on the same emission standards of natural gas, which is a high, high bar. That is something that has been discussed, for example, with Joe Desmond and the California Energy Commission, as a parameter for the Frontier [transmission] line. If we were to do it a requirement [would be] that any power going into the line coming to California would meet those standards. The approach we have taken thus far is we can’t see coal on the near-term horizon because of the emission standards we’ve identified.
Fortnightly: Of the 2,200 MW of power assets that you hope to build in California, what will be the fuel mix? And if you are using natural gas, how do you hope to manage the price impact?
Darbee: We’ll have the renewables, which we treat as a separate category, but of the 2,200 it will all be natural gas combined-cycle. We have been working with the California Public Utilities Commission (CPUC) on natural-gas contracts and hedges. For example, the spot market is down to 6 or 7 dollars per million BTUs. So, that’s really the vehicle we use. Now, we blend that with our Diablo [nuclear plant] and our hydro, which are under 3 cents a kilowatt hour. And then it is also blended with renewables [that] can be considerably more expensive. So, in answer to the question, there is a cost to clean power, and the CPUC has concluded what we get is worth the cost.
Fortnightly: But if California’s ethos or politics were not bent toward all clean energy, given the economic realities, would that still be the ideal resource portfolio?
Darbee: We are looking at nuclear power outside the state, where we might partner with others, for example, who might have a license on sites that haven’t been built on. That’s a possibility. We will also work with IGCC with others outside the state. But because of the laws on nuclear power specifically stating that we can’t build a new nuclear power plant unless Yucca Mountain is up and running, and the public reaction to coal, we just don’t see at this juncture the opportunity for nuclear and IGCC in the state. We are exploring it outside the state, where the environment may be more conducive.
We want to do that because we believe in fuel diversity, and therefore we’re trying to put bets on these different places. But we have to be very cognizant of the business environment, both legal and political, in California around coal and nuclear. But let me just mention that we have a renewable portfolio standard (RPS)