Palomar Energy part of a power play

By: QUINN EASTMAN - Staff Writer | Saturday, April 29, 2006 11:54 PM PDT ∞

ESCONDIDO ---- The new Palomar Energy power plant in Escondido could save money for electricity customers and even slightly reduce the overall smog level in North County, San Diego Gas & Electric Co. executives and local air pollution regulators say.

Because it generates electricity more cleanly and efficiently than the region's previous generation of power plants, Palomar Energy is part of a chess game being played against the utility's corporate competitors.

For the bulk of local power generation, San Diego County has until this year relied upon the nuclear San Onofre plant north of Camp Pendleton and two fossil fuel-burning plants in Carlsbad and Chula Vista built in the 1950s and 1960s. SDG&E, which owns the Palomar energy plant and is the regional distributor of electricity, was forced to sell the Encina plant in Carlsbad and the South Bay facility in Chula Vista as part of deregulation a decade ago.

Now SDG&E, owned by energy giant Sempra, indirectly pays millions of dollars to its rivals NRG and Duke Energy for power from the Encina and South Bay plants.

The 550-megawatt Palomar plant in Escondido, along with the controversial Sunrise Powerlink proposal to stretch a transmission line through East County, are part of a game plan to reduce those payments by millions of dollars per month, the company says.

A third part of the plan is the completion of the 510-megawatt Otay Mesa power plant, after buying it from bankrupt Calpine. The deal still needs approval from state regulators and Calpine's bankruptcy judge.

SDG&E's vice president of electric, Jim Avery, described the overall plan recently at a California Energy Commission workshop.

"It is our hope and goal ... that we can reduce that dependency on the old power plants by a sufficient level to allow at least South Bay to consider retiring," he said. "And through the addition of plants in the future, to look at ways to potentially allow Encina to retire."

Avery added that the owners of both older plants may choose to retool, investing millions to satisfy additional electricity demand, rather than dismantle them.

But some energy industry analysts have discerned a long-range strategy to squeeze out the competition.

Some energy companies want to build in San Diego County but are afraid of angering SDG&E, the "800-pound gorilla," said Michael Shames, director of the Utility Consumer Action Network.

"There is that theory," said Scott Anders, director of the Energy Policy Initiatives Center at the University of San Diego law school. "If they get rid of South Bay and Encina, which they don't own, they can get back to being a vertically integrated monopoly like 15 years ago."

Competitors still in the game


The operators of both the Encina and South Bay plants say they don't intend to bow out, and want to rebuild modern plants on or near the sites of the old ones.

In the case of the 710-megawatt South Bay plant, Duke Energy last year made a deal to sell its California power plants to LS Power, Duke spokesman David Hicks said.

However, Duke still expects to apply to the California Energy Commission this June for permission to build a slightly smaller air-cooled power plant ---- maximum capacity 620 megawatts ---- just to the south, he said. That permission would be transferred to LS Power and the old plant's site would be redeveloped.

"There's still a need for South Bay," he said. "We think it's a very good opportunity."

Hicks pointed out that SDG&E has said it still expects to need 1,000 megawatts of local production from other companies even if it completes the Otay plant and the Sunrise Powerlink.

In Carlsbad, NRG Energy is planning to apply to the California Energy Commission to retool the 960-megawatt Encina plant next spring. NRG bought out its partner Dynegy's interest in Encina in December.

NRG's West Coast President Steve Hoffman said the company, which also owns smaller "peaker" plants in the county, is in the middle of designing Encina's upgrade.

"We intend to replace 100 percent of our capacity in San Diego County," he said. He added that not all of the megawatts might be in their current locations and said his company would talk with SDG&E about where the best locations are.

More efficient


SDG&E's corporate cousin, Sempra Generation, built Palomar as a state-of-the-art "combined-cycle" power plant. It is very similar to another one recently built by Sempra in Kern County called the Elk Hills Power Project.

Only about 60 percent of Palomar's output comes from burning natural gas that drives two turbines, according to director of generation Dan Baerman. The rest comes from steam turbines driven by the heat produced by the burning gas.

According to an industry survey by Power magazine, Elk Hills' "heat rate," a measure of how efficiently the plant converts natural gas into electricity, is about 6,500 British thermal units per kilowatt-hour. Palomar's heat rate was recently tested at around 6,800, according to the California Energy Commission. A lower number is more efficient.

For comparison, the Encina and South Bay plants have heat rates above 10,000.

That extra efficiency, which only comes when the Palomar plant is running at "base load" or close to full capacity, could save SDG&E money and allow it to pass on those savings to customers.

The manager of the state power grid, the Independent System Operator, makes "capacity payments" under annual contracts to reserve power from the Chula Vista and Carlsbad plants, which SDG&E indirectly pays for.

SDG&E acquired Palomar at a cost of more than $400 million, and is able to recover the cost of its investment from its ratepayers. The annualized cost is about $70 million, Avery said recently at Palomar's formal dedication.

However, he said that his company expects to save more than $60 million this year and $85 million next year because of Palomar's reduction of the capacity payments.

Less smog?


Relying less on the older plants could also mean a marginal reduction in smog-producing chemicals in North County air, even apart from the payments SDG&E has made to reduce pollution elsewhere in exchange for Palomar's construction.

Compared with the Encina and South Bay plants, Palomar emits about half the nitrogen oxides for burning the same amount of natural gas, according to Michael Lake, assistant director of the San Diego Air Pollution Control District.

Encina doesn't run all the time and is designed to respond quickly to electricity demand, NRG executive Hoffman said.

During the state energy crisis in 2001, it ran full-throttle and operators had to seek special permission to produce more nitrogen oxides. Since then, the operators have installed equipment that reduced emissions by more than 85 percent.

In 2004, while running on a part-time basis to meet demand, Encina produced 220 tons of nitrogen oxides, Lake said, compared to Palomar's annual cap of 124 tons.

Power plants' exhaust also contains a host of other chemicals besides nitrogen oxides, but the two components of smog the air pollution district monitors most closely are ozone and particulates or dust.

Ozone is a regional beast, not a local one, Lake said. Nitrogen oxide produced in Escondido might drift somewhere else before it reacts with sunlight to make ozone, the main lung irritant in smog.

"Ozone is not a localized impact," he said.

According to district monitoring, a relative hot spot for the county's smog is unindustrial Alpine, because the winds and terrain trap pollution that comes from other places.

Most of the nitrogen oxides in San Diego County come from cars and trucks. They produce more per day than Palomar Energy can emit per year.

This may not console some of Palomar's neighbors, who were concerned about SDG&E's recent request for a one-year variance on Palomar's emissions regulations during the plant's start-up times.

The company's request to make 225 pounds of nitrogen oxides per turbine per hour, rather than a previous limit of 100 pounds per turbine per hour during warm-up, was granted by the San Diego Air Pollution Control Board last week.

The company's request for more start-up time, three hours during normal operation instead of the usual two, was also granted but only one turbine can fire up at a time.

"We're taking a serious look at the need for additional emissions during start-up and the effect on air quality," Lake said. "We have to treat everyone consistently."

Contact staff writer Quinn Eastman at (760) 740-5412 or qeastman@nctimes.com.

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