SAN DIEGO -- San Diego Gas & Electric (SDG&E) has recently proposed a plan to purchase a mix of demand response and local generation assets, including energy from renewable resources and new power plants, to meet growing customer needs beginning in 2005. This announcement reflects a state decision effective Jan. 1, 2003, to put SDG&E back in the role of planning and procuring electricity for its customers after the energy crisis of 2000-2001.

"For more than 100 years, SDG&E has supplied safe, reliable power to its customers," said Edwin A. Guiles, chairman and chief executive officer of SDG&E. "We are pleased to be back in the role of planning and procuring the resources to meet our customers' needs."

"Today, we are asking the California Public Utilities Commission (CPUC) to approve our recommendations to meet SDG&E's grid reliability needs and help ensure the region's future energy security. Our proposal is in alignment with the state's Energy Action Plan and represents direction from the commission to consider utility generation ownership in our mix of resources."

The state Energy Action Plan, drafted and approved earlier this year by the CPUC, the California Energy Commission and the California Power Authority, provides policy guidance for future resource additions.

Proposal Highlights

The recommendation for local resources to meet SDG&E's grid reliability needs in 2005-2007 includes:

Demand response

-- A voluntary program that will cycle air conditioners during peak-use periods to reduce the amount of energy needed in the region. The program will target SDG&E's business customers with a goal of reducing demand by 8.7 megawatts in 2005, climbing to a total of 30 megawatts by 2007.

Renewables

-- Purchase of 40 megawatts of renewable biomass energy.

-- Partnership in a joint demonstration project using solar thermal generation technology.

Power Plants

-- Purchase of a new 45-megawatt combustion turbine.

-- Purchase of the 550-megawatt Palomar power plant from SDG&E's affiliate, Sempra Energy Resources. SDG&E will buy the plant, located in Escondido, when construction is complete in 2006. The plant will then be owned and operated by SDG&E under CPUC regulation.

This mix of resources, valued at approximately $600 million, reflects SDG&E's commitment to create a balanced portfolio of resource types.

As part of the RFP process, SDG&E also identified another project that, while not needed for near-term grid reliability, would provide the region and the state with an additional new power plant.

SDG&E is requesting CPUC approval to sign a power-purchase agreement for 570 megawatts of power from Calpine Corp.'s Otay Mesa plant for 10 years. Under the agreement, Calpine's power plant, still under construction, will begin supplying power to SDG&E in 2007 at regulated rates.

Several steps still must be completed before this agreement with Calpine can create the full benefits for San Diego and the state. SDG&E would need to receive expedited approval of electric transmission system upgrades in the southern portion of SDG&E's service territory to receive the power. A state power-purchase contract currently allocated to SDG&E customers would need to be shifted to Pacific Gas & Electric (PG&E) by the CPUC. That power is generated in PG&E's service territory.

SDG&E's resource recommendations in today's filing are in line with its long-term resource plan announced in April 2003. That plan outlined a balanced portfolio of resource options, including more energy efficiency, increased use of renewable energy, new transmission lines and more local generation. In May, SDG&E issued a request for proposal (RFP) to meet the region's energy needs starting in 2005, which drew 22 bids representing a variety of resource types including demand reduction, renewable and fossil fueled generation.

"We were very pleased with the number of strong proposals we received in response to the RFP, and we are confident that the resources we recommend today are reliable, low cost and environmentally superior," said Lad Lorenz, SDG&E's vice president of electric and gas procurement. "This combination of generation assets is at least 30-percent more fuel-efficient than existing power plants in the region."

SDG&E subjected the bids to several months of analysis and negotiation to ensure that the different proposals were fairly evaluated and that an appropriate mix of resources was chosen that would best meet customer needs. A Procurement Review Group, established by the CPUC, provided review and advice during the procurement process. The panel includes representatives from consumer and environmental groups and state agencies. An independent third-party observer also monitored all the negotiations with Sempra Energy Resources and Calpine to ensure compliance with the RFP and the CPUC's affiliate guidelines.

"The RFP is an industry standard and a proven, competitive process," said Robert J. Resley, SDG&E's vice president of strategic and resource planning. "We are confident these steps helped ensure the best results for San Diego and our customers, and we believe this balanced mix of resources will provide a significant enhancement to San Diego's energy reliability for years to come."

Resley pointed out that SDG&E's long-term resource plan calls for more energy efficiency and demand response, more renewable and distributed generation resources, as well as an additional transmission line.

"Today's resource recommendations provide the region with the time needed to bridge to greater use of these emerging technologies consistent with the Energy Action Plan," added Resley.

SDG&E's filing is subject to CPUC approval, including public hearings expected to be held by the end of the year with a final decision anticipated in the first quarter of 2004.