III. Summary of Parties' Positions
SDG&E seeks authorization to enter into a ten-year PPA with Calpine, at a cost of $739 million, for power from the 573 MW Otay Mesa gas-fired plant, OMEC, that will come on line in January 2008.3 The controversial issue that developed in the rehearing is whether the PPA will provide ratepayer benefits. SDG&E presented testimony with supporting data that supports its position that the PPA does provide ratepayer savings, whereas the consumer groups challenged that claim and presented testimony and data indicating that the PPA does not provide the benefits SDG&E claims, especially during the first three years of the contract, 2008 through 2010.
Independently of the Otay Mesa PPA, SDG&E applied for a certificate of public convenience and necessity (CPCN) for the installation of two 230 kilovolt (kV) electric transmission circuits, covering approximately 52 miles, in the same geographic area where the energy center will be located. These circuits will allow the OMEC to connect at the Miguel Substation with SDG&E's Sycamore Canyon Substation and Old Town Substation. In D.05-06-061, the Commission granted SDG&E the requested CPCN for the Otay Mesa Power Purchase Agreement (OMPPA) Transmission Project. While the transmission lines and the PPA for the energy center are separate and distinct, and were reviewed and analyzed by the Commission in different proceedings, the fact that the new transmission lines will be in service by the time the energy center comes on line does impact the evaluation of the PPA.
The interrelationship of the OMPPA Transmission Project with the OMEC became an important focus at the EHs because of SDG&E's claim that the energy center would benefit ratepayers by reducing transmission congestion costs. The evaluation of congestion costs was the primary factor dividing the utility and the consumer groups on evaluating and computing the amount of ratepayer savings.
SDG&E and Calpine strongly urge the Commission to quickly approve the Otay Mesa PPA on the ground that the record demonstrates clear ratepayer benefits. SDG&E developed the record by comparing the Otay Mesa PPA with an alternative option on numerous categories. When some of these categories were viewed individually, the Otay Mesa PPA was not more cost effective than the option. However, when all the factors were considered over the term of the PPA, SDG&E shows a net present value (NPV) benefit to ratepayers of $86.5 million.
SDG&E's analysis of the PPA identified $32 million in additional benefits when reduced costs for transmission congestion savings were included, totaling a NPV of $118.6 million in ratepayer savings.
TURN/UCAN challenge SDG&E's analysis on the transmission congestion savings and claim that reduced transmission congestion costs translate into reduced congestion rents-and therefore ratepayers do not benefit. TURN/UCAN also fault SDG&E's use of an alternatives "proxy" and question whether there are real alternatives that could provide similar or greater portfolio benefits at overall lower cost. TURN/UCAN urge the Commission to reject the Otay Mesa PPA and order SDG&E to fill any short resource need through alternative strategies.
ORA does not challenge the overall benefits of the Otay Mesa PPA, but presents data seriously questioning its economic usefulness pre-2011. Chula Vista agrees with ORA. Both ORA and Chula Vista suggest authorizing the Otay Mesa PPA, but deferring its implementation until 2011.
3 In the earlier proceeding on SDG&E's request for the six electric resource contracts, there was testimony that the Otay Mesa facility could come on line as early as June 2007, but SDG&E has indicated that it does not need the output until January 2008, so Calpine agreed to the later date.
