Pacific Gas & Electric Co. will need 2,200 megawatts of new electricity production in Northern California by 2010 to meet growing demand and compensate for the expected closure of obsolete power plants, company officials say.
Northern California's major utility is seeking bids from private generators for the best way to bring that new power to the market and offering long-term energy contracts for energy generators with the winning bid.
The open bid process marks a major victory for San Jose-based Calpine Corp., which has been lobbying hard to open all new power plants projects in PG&E's territory to competitive bid.
"This is great news for us," Calpine spokesman Kent Robertson says. "There are a bunch of interested parties looking for [energy] contracts. We welcome that competition."
Calpine is saddled with $18 billion in debt and desperately needs new power plant construction projects to produce new revenue. The company had 2004 revenues of $9.3 billion with a net loss of $418 million.
PG&E had sought to own at least one, and maybe more, new power plants in its territory and has said it plans to make its own bid to own and operate a 500-to-600-megawatt power plant.
Specifically, PG&E is looking for up to 1,000 megawatts of new generation by 2008 and another 1,200 megawatts by 2010.
Some national energy giants have expressed interest, including Duke Energy of North Carolina and Texas-based Reliant Energy Inc. But because of the long-lead time in getting a state power plant permit processed and approved, those with existing permits -- like Calpine -- would seem to have an advantage.
Calpine has state permits for 3,352 megawatts worth of power plants, but their projects have been on hold because the company hasn't been able to find financing. Those projects include the 600-megawatt Russell City Energy Center in Hayward, a 1,200-megawatt plant in eastern Alameda County and a 600-megawatt plant in San Joaquin County.
Under rules developed by the California Public Utilities Commission, an independent "evaluator" will judge all bids -- including the one from PG&E -- and decide which company or companies should receive contracts to build power plants. PG&E had sought to make the determination itself.
Bids can be for plants that supply anywhere from 25 megawatts to 2,200 megawatts. With a few exceptions for renewable or experimental electricity generation projects, all electricity must come from newly built plants.
Calpine's 600-megawatt Metcalf Energy Center power plant in south San Jose, scheduled to open this summer, won't qualify for these contracts. That power plant has no long-term contract and Calpine has delayed the project for two years because of uncertainty in the wholesale electricity market.
Calpine officials say the company can begin building power plants once a long-term energy contract is signed.
"If you can show the contract to Wall Street, the money is there," Mr. Robertson says. "But it takes two years to build a power plant. You don't want to wait until the lights go out before you decide to start building."
Some analysts say California will never conquer its electricity crisis until it makes up its mind how its energy market will operate, says Sean Randolph, executive director of the Bay Area Economic Forum.
Until it figures out whether it wants to go ahead with a free market electricity market, return to a regulated system or adopt a hybrid called "core, non-core" that allows large companies to buy energy on the market while regulating residential and small-businesses prices, California will continue to worry about adequate energy reserves, Mr. Randolph says.
That uncertainty has all but frozen private investment in new power plants, he says.
"First thing we need to do is end this regulatory uncertainty," Mr. Randolph says. "The worst thing we have is what we have now."
Andrew F. Hamm covers energy for the Business Journal. He can be reached at 408-299-1841.