VIII. Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and Carol Brown is the assigned ALJ in this proceeding and principal hearing officer in this portion of the proceeding.

Findings of Fact

1. SDG&E is seeking approval of a ten-year PPA with Calpine, at a cost of $739 million, for power from the 573 MW Otay Mesa gas-fired, combined-cycle power plant, that will come on-line in January 2008.

2. The Otay Mesa EC will connect at the Miguel substation with SDG&E's new transmission lines, approved in D.05-06-061, that connect SDG&E's Sycamore Canyon Substation and the Old Town Substation.

3. SDG&E's service area does not need all of the output from the Otay Mesa PPA for its grid reliability needs 2008 through 2010, assuming all existing generation remaining in place.

4. Even with low capacity in the first three years of the PPA, we find that SDG&E established ratepayer benefits over the ten-year term of the contract.

5. We find that the benefits that supported our decision in D.04-06-011 to approve the Otay Mesa PPA then, are still viable today. The benefits are: reduced RMR costs; a state-of-the-art, low heat-rate, economical, clean power source; increased overall efficiency and reliability in the utility's service area; an insurance policy in case of another energy crisis; a reduction in power shortages; and a way for older units to retire.

6. We find that the record does not provide any evidence that there will be an option available in 2011 that will provide all the ratepayer benefits of the Otay Mesa PPA, and without any of its deficiencies.

7. We find that the Otay Mesa energy center is in a location that will allow SDG&E to meet its grid reliability needs, its resource adequacy requirements, its local area requirements, if adopted, reduce RMR costs, meet the G-1/N-1 requirements and be fully deliverable.

8. SDG&E established that the Otay Mesa PPA is reasonable and provides ratepayer benefits.

9. SDG&E should record costs relating to the Otay Mesa PPA in its ERRA for recovery of those costs through commodity rates.

Conclusions of Law

1. It is reasonable to approve the Otay Mesa PPA and for SDG&E to record the costs relating to the PPA in its ERRA for recovery through commodity rates.

2. The Otay Mesa PPA benefits ratepayers, is reasonable and is in the public interest.

3. It is reasonable to protect ratepayers from unknown litigation costs by not pre-approving SDG&E's expenditure of ratepayer funds to preserve the PPA in a Calpine or Otay Mesa Energy Center, LLC, bankruptcy proceeding.

ORDER

IT IS ORDERED that:

1. San Diego Gas & Electric Company (SDG&E) may execute the Otay Mesa Power Purchase Agreement (PPA) with Otay Mesa Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation.

2. SDG&E is authorized to record the costs of this PPA in the Electric Resource Recovery Account and recover the costs through commodity rates.

3. SDG&E may file advice letters, or tariffs, as appropriate and necessary to implement the orders, conclusions and results reached in this decision.

4. SDG&E may not spend ratepayer funds preserving the Otay Mesa PPA in a Calpine or Otay Mesa Energy Center, LLC, bankruptcy proceeding without seeking prior Commission authorization.

5. Rulemaking 01-10-024 is closed.

This order is effective today.

Dated February 16, 2006, at San Francisco, California.

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