Downtown Buildings May Run Out of Steam

San Diego Gas & Electric plans to eventually close an uneconomical, underground steam system that has supplied steam to as many as 100 downtown buildings during the past 46 years.

The steam loop, which sends wisps of steam up through manhole covers throughout downtown, now serves 41 customers, including Home Federal Savings & Loan, the Westgate Hotel, the San Diego County Courthouse and the City Concourse, most of which use it to heat air and water.

One of only two in the state, the steam loop has operated at a loss, according to Terry M. Winger, director of SDG&E;’s power operations.

State regulators have in the past allowed SDG&E; to pass those losses along to the utility’s electricity customers in the form of higher electricity rates, according to Winter. The subsidy amounted to $500,000 in 1985.

However, state regulators have authorized SDG&E; to institute “cost-based rates” that allow the utility to charge all steam loop operating and maintenance costs to only those customers on the loop.

Despite the cost-based rate structure imposed in January, SDG&E; still wants to shut down the steam loop because it will never generate a profit, Winter said.

In addition, two-thirds of SDG&E;’s steam customers already have decided to drop off the system and turn to less expensive alternatives, according to Winter.

Home Federal, which uses steam to heat its building on Broadway, will switch to a gas-fired heating system this year, according to John Morse, the thrift’s facilities engineering manager.

Ever-increasing steam rates are the “motivating factor” for Home Federal’s upcoming switch from steam to a gas-fired system, according to Morse, who explained that steam rates, at $3.10 per therm, are just below SDG&E;’s electricity costs, and far above natural gas rates, which now sit at 60 cents per therm.

Because of the new cost-based rate structure, as steam customers drop off, rates to remaining customers will increase, Winter said.

In 1985, believing that gas and oil rates would rise, SDG&E; warned customers that the steam system would be uneconomical by 1988. However, gas and oil prices tumbled and stayed low, giving steam users a breather.

Then the state Public Utilities Commission agreed that SDG&E; could initiate its cost-based rate system in 1987, which ended subsidies for electricity rates.

Consequently, SDG&E; has backed off from the 1988 date and will continue to produce steam at Station B.

Additionally, the generating plant, which produces the steam that is piped to downtown buildings, sits on a highly desirable parcel of land at Kettner Boulevard and Broadway. SDG&E; has expressed an interest in eventually selling the land to a developer.

SDG&E; also has tried to sell the underground steam system, but has failed to find a buyer. One energy company that was approached by SDG&E; described the steam system as a “hard sell” because of the dwindling market for steam.

Unless SDG&E; can convince all of its steam users to abandon the system, state Public Utilities Commission approval would be required to close it down.

“If SDG&E; is able to satisfy all of its steam customers, the PUC would not protest, but if a significant number of customers don’t want to leave the system, there would have to be a formal proceeding,” according to George Amoroli, chief of the PUC’s energy branch.

Station B, the smallest and oldest of SDG&E;’s operating power plants, has a colorful history.

It was built in 1911 to power the San Diego Electric railway and was acquired by SDG&E; in 1921. Although the building houses several pieces of generating equipment, only one device, a turbine added in 1941, is still in operation.

That steam-producing machine “is far from being state of the art,” according to maintenance Supervisor Gil Grotta. “It’s very inefficient, but it works perfectly.”

Several other turbines, which, for a period of years provided all of SDG&E;’s electrical needs, are “museum pieces, if anything,” according to Winter.

“The plant is not economically viable anymore,” according to Grotta, who said SDG&E; has entertained offers from several South American countries that have considered buying the old turbines.

“To date, nothing has materialized,” Grotta said.