Southern California Edison will not be able to pass on to its customers up to $30 million in costs to join a study of whether petroleum coke, an oil refinery byproduct, can be turned into a clean, low-carbon fuel for power plants.
But the electric power supplier might be able to be compensated later.
Southern California Edison wants to join a study by a joint venture of BP Plc and Rio Tinto -- global oil and mining giants, respectively -- but California's utility regulator said no on Friday to its proposal to charge higher electricity rates to pay for it.
The goal is to build the first utility-scale U.S. power plant to turn pet coke into hydrogen and store carbon emissions underground.
While the California Public Utilities Commission's members said they like the idea of carbon capture and storage, they did not agree to allow Southern California Edison to recover $30 million in costs of a feasibility study through higher electricity rates.
Instead, if the utility joins the BP/Rio Tinto project, called Hydrogen Energy International, it can keep track of its costs of a feasibility study, up to $30 million, with a chance to be compensated later, the commission decided.
A spokesman said the utility is studying the commission decision. Southern California Edison, the primary subsidiary of Edison International, is the second-largest electric utility in the United States, with more than 4.8 million customers.
CPUC President Michael Peevey encouraged PG&E and Sempra Energy, owners of the state's other big investor-owned utilities, to participate in the project.
If California's utilities work together, the costs and risks of this and other carbon capture projects can be shared broadly so that the benefits can be realized by all Californians, Peevey said, including commercializing carbon capture and storage technology.
Petroleum coke is the bottom of the barrel of what is produced at a dozen California oil refineries, including one owned by BP in Carson, near Los Angeles.
California refiners ship petroleum coke, which has the same chemical characteristics as coal, to China where it is burned at power plants, releasing CO2 into the air.
The BP-Rio Tinto venture seeks to build a utility-scale, 390-megawatt power plant at the oilfields of Kern County north of Los Angeles that will make electricity by burning hydrogen made from petroleum coke. Along with hydrogen, the process would create carbon dioxide, which would be injected into Occidental Petroleum oilfields to increase oil production.
This would cut 90 percent of the CO2 emissions, cutting 2 million tons a year, the BP/Rio Tinto joint venture says.
The method is experimental. However, gasifying coal and injecting emissions underground is a cornerstone of an effort by the coal industry and U.S. utilities to prove coal can remain a key to power production.
Half the power generated in the United States and a fifth of the power delivered in California comes from burning coal.
Coal is cheap and abundant, but making electricity with coal also creates 40 percent of U.S. greenhouse gas emissions.
BP and Rio Tinto created their joint venture in 2007 in hopes of making carbon capture and storage viable.
They want to start construction on the Kern County power plant in 2011 and finish it in 2014, according to the website of Hydrogen Energy International.
An effort to start a pet coke/hydrogen production plant at the BP oil refinery in Carson near Los Angeles was dropped when it was seen as too far from the oilfields in Kern County.
(Reporting by Bernie Woodall; Editing by Gary Hill)