PG&E Corp.à‚ ended itsà‚ bid to buy a 246 MW wind farm project from Iberdrola for $900 million after an administrative law judge recommended that California regulators reject the proposal.

Iberdrola canceled its plans to sell its Manzana wind project in Southern California on Jan. 14. The cancellationà‚ followed a state administrative law judge recommendation in Decemberà‚ thatà‚ regulators deny PG&E’s request to buy the proposed plant.

The project is “not cost-competitive and poses unacceptable risks to ratepayers,” according to the law judge’s proposed decision filed with the California Public Utilities Commission on Dec. 21.

In December 2009, PG&E agreed to buy and operate Iberdrola’s 246 MWà‚  facility for about $900 million. It would have been the first wind farm to be owned by PG&E.

The December administrative law judge decision read in part, “We reject the application because we find that the Manzana Wind Project is not cost-competitive and poses unacceptable risks to ratepayers. We find that the proposed cost of the Manzana Wind Project is significantly higher than other resources PG&E can procure to meet its RPS program goal. Moreover, it will subject the ratepayers to unacceptable risks due to potential cost increases resulting from project under-performance, less than forecasted project life, and any delays which might occur concerning transmission upgrades and commercial online date. As a proposed utility-owned generation project, ratepayers would pay a lump sum cost rather than a performance based cost for the Manzana Wind Project. Therefore, ratepayers would be at risk if the project underperforms. In particular, if the Manzana Wind Project fails to achieve production as expected for any reason such as construction delays or curtailments as a result of a collision with a California condor, shareholders face no risks while customers could incur increased costs. In contrast, under a powerà‚ purchase agreement, project owners rather than ratepayers bear the risk of project performance.

“The Commission also finds it unreasonable to approve PG&E’s application because PG&E has not made an adequate showing of need to support its application. For example, there is no demonstration that the Manzana Wind Project is needed to meet reliability or forecasted electrical demand of PG&E’s customers. There is also no demonstration that utility ownership of this project is needed to meet PG&E’s California Renewables Portfolio Standard (RPS) goals or that this project is needed as a hedge against the development risks of other projects in PG&E’s current RPS portfolio. There is also no showing of a gap in the market for wind projects that must be filled by utility-owned projects to otherwise justify this application.

“In short, although the project would contribute to the California renewable generation goals, given the availability of other lower-priced renewable projects in the competitive market that could impose far less risks on ratepayers, PG&E has failed to demonstrate a need for this project.”

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