Power-Hungry Planners Eye Cash-Starved Plant in San Diego
hoovnews.hoovers.com
Jan. 4--A muddy site near the Mexican border in Otay Mesa has become the focus of concern in ensuring the lights stay on in San Diego.
By all appearances, the site for a 510-megawatt power plant to be built by Calpine Corp. is a work in progress.
The San Jose company has the permits necessary for the project and has delivered about $100 million of electricity-generating equipment. With just 5 percent of the project complete, Calpine has also found a buyer for nearly half the expected output of the plant, which could power about 500,000 homes.
Regional planning experts, moreover, say the plant's entire output will almost certainly be needed within this decade.
But all that could be for naught because Calpine does not have the financing at the moment to proceed with the $400 million project. The uncertainty for Calpine translates into worry for local electricity planners.
"This area is going to need that power," said Irene Stillings, executive director of the San Diego Regional Energy Office.
San Diego Gas & Electric now imports at least 50 percent of the electricity needed by its customers. The utility had planned to increase its imports by building the Valley Rainbow power line in North County, but that plan was rejected by the California Public Utilities Commission last month.
Without the new power line, the development of new electricity-generating plants within the region has grown more important.
The Otay Mesa plant won state approval in part because of an innovative plan to offset whatever air pollution it produces by emission reductions it will finance on trucks and boats in the region.
Joe Ronan, Calpine's senior vice president for government and regulatory affairs, emphasized that the company's project remains technically on schedule.
The next milestone is July 30, when foundations for the facility are supposed to be poured.
But Ronan also conceded that Calpine faces a new and more difficult environment for project financing.
After the collapse of California's deregulation experiment, along with the meltdown of Enron and other energy trading companies, lenders raised their requirements for new project financing.
"There is a definite crunch across the industry," said Patrick Mullen, a spokesman for Duke Energy, which has suspended several power projects.
The tougher credit requirements, combined with reduced demand in a sluggish economy and the completion of new projects to boost supply, have caused some companies to suspend new power plant projects.
But Calpine says it remains committed to Otay Mesa. Financing probably could be secured if the company can arrange to sell the unsold balance of the plant's planned output.
A natural customer for that power would be SDG&E. But the local utility says its power needs for the next five years will be almost fully met by existing power plants and its share of electricity from long-term contracts signed by the state.
"If you look strictly at the load resource balance for the next five years, the plant is not needed," said Robert Resley, vice president of resource planning for SDG&E.
He added that the utility might have excess power in that time frame. Resley said the shortages many remember during 2000 and 2001 disappeared because of new plant development, lower demand and the long-term power contracts signed by the state.
Others contend that a federal crackdown on the withholding of electricity by market manipulators also played a key role.
Without increased conservation, however, local electricity surpluses are likely to disappear in five years. That's not soon enough to secure power plant financing for Otay Mesa.
Jan Smutny-Jones, director of the Independent Energy Producers Association, says the situation may improve over the next few months as SDG&E and other utilities resume electricity purchasing for their customers.
That role had been suspended during the power crisis, when the utilities found themselves unable to buy electricity and the state of California became the prime purchaser.
"The PUC's procurement decision laid out what the rules will be for the utilities going forward," Smutny-Jones said. With the rules clarified, he said, utilities such as SDG&E should become more comfortable making long-term purchases for their customers. And that could include buying power from the Otay Mesa project.
In the meantime, Ronan said the company is exploring alternative financing for the project. One possibility would be financing from the California Power Authority, which was created during the crisis to ensure stable electricity supplies.
Stillings said regional officials have also discussed creation of a joint power authority.
"It could provide financing for just this kind of project," she said. |
