Discussion

DRA, TURN, and UCAN joined in the Joint Petition because they believe that SDG&E customers are likely to realize substantial benefits from the revised PPA for Otay Mesa. UCAN represents residential and small commercial customers in SDG&E's service territory and TURN represents ratepayer interests throughout the state, as does DRA. Although these intervenors presented arguments against the approval of the Otay Mesa PPA in both the original proceeding considering the plant, as well as during the rehearing proceeding, they now join with SDG&E in urging the Commission to approve the revised Otay Mesa PPA. In summary, although the revised PPA includes generally the same terms and conditions as the original PPA the Commission previously approved, the revisions to the PPA enhance the benefits to SDG&E's customers making it an agreement the intervenors can now support.

In particular, TURN and UCAN find that the revised PPA resolves the uncertainty associated with the Calpine bankruptcy and certain conditions precedent SDG&E had proposed for the unrevised PPA. TURN and UCAN were concerned with the status of Calpine's financial condition and what effect that would have on the viability of the PPA. Now that SDG&E has renegotiated the PPA, from TURN and UCAN's perspective, the financial risks to SDG&E's customers have been removed.

The original PPA was for a ten-year term with an on-line date of January 2008. TURN/UCAN argued against the Commission's approval of the PPA because (1) there was no protection against the potential future exercise of market power by Calpine once the ten-year term expired; (2) it is very likely that SDG&E will need the output from Otay Mesa post 2018; and (3) there were projected low capacity factors for the first half of the ten-year term, making the asset uneconomical for SDG&E customers.

Now, however, with a delayed on-line date that mitigates the low capacity factors for the first 17 months and the Put and Call Options that ensure that the benefits of the plant continue past the initial ten-year period, TURN/UCAN believe SDG&E customers will benefit from the resource and urge the Commission's approval.

Other Benefits of Put and Call Options

As mentioned above, when the original Otay Mesa ten-year PPA had a start date of January 2008, the consumer intervenors raised questions as to the economic efficacy of the asset since SDG&E did not show a "need" for the MW output from the plant until 2010. For a ten-year PPA, that basically meant that ratepayers were paying for a baseload asset for two years when there was no demonstrable need. Now, however, with the start date delayed by 17 months, that problem is mitigated.

Also, part of the attraction of the Otay Mesa plant was its location within SDG&E's load pocket. This attraction could become a market-power liability, however, if SDG&E really needed that power upon the expiration of the ten-year PPA, and Calpine was free to charge whatever price the market would bear. Now, with the option to purchase the plant with guaranteed pricing, SDG&E's ratepayers will not be subsidizing the construction of a new generation asset, with a 30-year projected life, but only receiving benefits for 10 years. In addition, to ensure that SDG&E will only acquire a plant that is functioning well and in good condition at the end of the ten-year delivery term, the Put and Call Options prices are contingent upon the plant being designed, constructed, operated and maintained in accordance with manufacturers' specifications and prudent industry standards.