California Struggles to Quit Gas as Demand Crisis Looms

California's push to wean its power grid off natural gas has run up against another reality check.

As the state stares down a potential electricity shortfall, the State Water Resource Control Board (WRCB) last week extended the deadline for phasing out seawater cooling at four gas-fired power plants near the coast — a move that will enable the plants to continue operating for at least three more years.

And on Aug. 31, the California Public Utilities Commission (CPUC) will vote on a controversial proposal to boost the capacity of the Aliso Canyon gas storage facility after years of efforts to shut down the Los Angeles-area facility.

The moves come as California marches toward a legislative mandate of having 60% of its retail electric sales supplied by renewables by the end of 2030 and 100% met by eligible renewable and zero-carbon resources by 2045, effectively ending the state's use of gas to generate power.

“The fundamental issue in California is that policy has effectively rendered less supply diversity to the grid, which can make supply very inelastic when dispatchable resources are needed to meet demand,” Rice University fellow in energy and resource economics Ken Medlock told Energy Intelligence. The variability of wind and solar resources “can make the supply stack on any given day very much like an accordion. … If we add in the fact that demand may surge for any number of reasons, such as A/C loads that flex with temperatures, the issue becomes even more difficult.”

Experts agree the choices available to correct for supply-side and demand-side variability are dispatchable resources — including natural gas — and battery storage.

“Natural gas is, at the moment, better at handling longer duration concerns,” Medlock said. “This means natural gas is likely to remain an important part of the energy mix in California for a while, which will mean native resources available through natural gas storage (Aliso Canyon) will also remain important because you need adequate fuel to run those plants.”

Storage Scuffle

The proposal to boost Aliso Canyon’s capacity comes even as regulators consider plans to phase out the facility in response to a massive methane leak that occurred there in 2015-16.

On Jul. 28, the CPUC issued a proposed decision to raise working capacity from 41.16 billion cubic feet to 68.6 Bcf, citing the need to protect consumers from high gas and electricity prices this winter. But the regulators stressed that the move won’t affect plans to eventually close the facility, which has been running below half of its 86 Bcf maximum capacity for years.

The decision follows a probe the CPUC launched in March in response to prices averaging $28.74 per million Btu last December, according to Energy Intelligence data. It is also part of the proceeding to determine the feasibility of reducing Southern California’s heavy reliance on Aliso Canyon gas.

“In light of information provided by parties to the proceeding regarding high natural gas pries in winter 2022-23, the proposed decision finds that it is necessary to modify the maximum storage level to protect natural gas and electricity customers from reliability and economic impacts during winter 2023-24, as requested by Southern California Gas Company and San Diego Gas & Electric,” the CPUC said in a statement.

"The proposed decision will not impact progress in the proceeding toward phasing out the need for Aliso Canyon," the regulator continued. The CPUC staff proposal issued in September 2022 — which ends the need for storage gas by increasing available electricity generation, battery storage and energy efficiency — "is still pending.”

That has raised the ire of California lawmakers that represent residents living near the facility.

“We are now past seven years since the Aliso blowout, the worst gas leak in US history, which forced 25,000 people and two schools to relocate for months due to the impacts and threats to public health,” the lawmakers wrote in an Aug. 22 Tuesday letter to CPUC President Alice Reynolds. “It is now six years since the opening of the proceeding, and the only two decisions made by the commission in the proceeding were to raise the maximum volume to 34 Bcf in November 2020 and then to raise it again to 41.16 Bcf in November 2021" — despite calls for its closure by former Governor Gerry Brown in 2017 and current Governor Gavin Newsom in 2019.

They argued that raising Aliso Canyon’s available capacity yet again would be “premature” given that the CPUC’s investigation into last winter’s high prices is ongoing and the “overwhelming opposition” from local communities. The accident, caused by a ruptured well, culminated in SoCal Gas reaching a $1.8 billion civil settlement in 2021 with affected parties.

Electricity Shortfall

Through its once-through cooling (OTC) policy launched in 2010, California had intended to phase out the use of seawater for power plant cooling by the end of 2020. But the WRCB decision to amend its policy for certain power plants pushes that goal out by almost a decade.

The board’s decision follows input from California’s Statewide Advisory Committee on Cooling Water Intake Structures, which includes representatives from several regulatory bodies and grid operators. Its role is to provide “recommendations to ensure that the compliance schedule in the OTC policy accounts for the reliability of California’s electricity supply, including local area reliability, statewide grid reliability, and permitting constraints.”

“The committee recommended additional resource capacity as the state transitions to renewable energy sources and moves to address a projected shortfall [of] as much as 10,000 megawatts in the summer of 2025,” the WCRB said.

The board pushed the compliance deadline by three years, to the end of 2026, for the 1,137 MW Alamitos, 226 MW Huntington Beach, and 1,491 MW Ormond Beach power plants. It extended the compliance deadline for the 326 MW Scattergood plant by five years to the end of 2029. It also granted an extension to the 2,280 MW Diablo Canyon nuclear plant, pushing its compliance deadline to Oct. 31, 2030, to align with an extension already provided through legislation passed last year.

The WCRB had weighed granting an extension to the MW Redondo Beach gas-fired 834 power plant, but declined to do so because of land use challenges. Plant owner AES no longer owns the property the plant sits on and is leasing it through this year.

“There are also covenants resulting from the previous sale of the property that may result in litigation should the compliance date be extended, and would likely limit AES’ ability to operate the power plant beyond 2023,” the advisory committee said.

According to the committee’s analysis, all of the gas-fired units at the plants that won compliance extensions had relatively low utilization rates, with annual capacity factors — a unit’s annual output relative to the megawatt-hours it is capable of producing — ranging between 1.87% and 6.37%.