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Otay Mesa to play into San Diego's energy future

Amidst the precarious state of the South Bay Power Plant's future, another name has arisen in discussions: the Otay Mesa Energy Center.

Located in San Diego County's unincorporated area, the center will be developed by Calpine Corp. (OTC: CPLNQ). Construction is slated for spring of this year, to be located on 46 acres one-and-a-half miles north of the U.S.-Mexico border.

In 2004, the California Public Utilities Commission (CPUC) approved a tolling agreement between Calpine and San Diego Gas & Electric that provides for the delivery of up to 600 megawatts of capacity for 100 years, beginning in 2008. The deal was renegotiated this year to push the online date to May 2009.

Under the terms of the agreement, SDG&E is responsible for fuel delivery from the natural gas-fired facility, and the facility must meet certain performance and environmental requirements.

In return, Calpine will receive a $9.75 per kilowatt-month capacity fee, as well as an operations and maintenance fee.

After 10 years, SDG&E will have the option of buying the plant from Calpine.

"The Otay Power Plant has been in the books for a long time," said Michael Shames, executive director of the Utility Consumer's Action Network.

The plant fulfills a projected need for 500 megawatts for 10 years after its online date, Shames said. One megawatt can power approximately 650 homes in California.

"It's not the best deal, and it's not the cheapest power, but it is in a convenient location and should be a reliable use of power," he said.

SDG&E spokesman Eddie Van Herik described the deal as a "competitive bid."

"We thought it was a good deal for our customers," he said.

The Otay plant fits in a trifecta of future power sources for the region: the South Bay Power Plant, Otay and the Sunrise Powerlink, the 120-mile transmission line to be developed by SDG&E.

SDG&E, who stands to profit tremendously from the Powerlink, according to Shames, has been pushing it over the two other sources as a solution to California's power needs and a means to higher use of renewable energy.

"The Sunrise Powerlink primarily was proposed for reliability," Van Herik said.

The South Bay Power Plant, owned and operated by LS Power, is due to be torn down, with a smaller, more efficient plant rebuilt in its place. This process has seen bumps in the road recently, with Chula Vista Mayor Cheryl Cox voicing that a power plant has no place on the Chula Vista bayfront, and SDG&E vice president Jim Avery announcing last week the utility had no intention to buy power from the plant to fund the renovation.

According to Shames, the renovation of South Bay may be much cheaper than the construction of the Powerlink.

"South Bay may be one of the more affordable locations for power," he said.

So what is absolutely needed, and what can be torn down?

"The answer isn't clear -- nobody knows," Shames said.

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