San Diego Gas & Electric unveiled plans Thursday to sell its Chula Vista power plant--and donate the nearly 200 acres of valuable bayfront property on which it sits--to the San Diego Unified Port District, which hopes eventually to close the plant and turn the area into a recreation, entertainment and shopping complex.
The transaction is a first in the restructuring of California's electricity industry.
So far, utilities have raced to divest plants at rich prices to new competitors eager to break into the lucrative California market. But under the proposed transaction, SDG&E; would accept less than the market value of the plant from the port--$112 million in cash--and donate the remaining approximately $50 million worth of land as a charitable contribution.
That way, the port district could afford to acquire the property and SDG&E; would be able to apply the full market value of about $162 million to paying off its "stranded assets," which are past investments in generating facilities and other assets that hamper the utility's ability to compete in an open market.
This will help to reduce electricity bills eventually, an SDG&E; spokesman said, because the state Legislature required that a part of the bills of customers of investor-owned utilities such as SDG&E; go to paying off the so-called competition transition charge for these assets during the next four years.
The more quickly that SDG&E; can recoup the cost of its power plants, the faster the charge will be eliminated from customer bills. The utility also intends to sell its other San Diego-area generating assets, including a 951-megawatt power plant in Carlsbad.
The 693-megawatt Chula Vista facility, the South Bay Power Plant on San Diego Bay, will continue to operate for another five to 10 years because it has been designated a "must-run" generating facility by the California Independent System Operator, which runs the state's electricity transmission system.
"Our goal is to decommission the plant, tear the place down . . . and open promenades with retail and entertainment facilities and new parks," said Port Commission Chairman David Malcolm. "It's a great piece of real estate . . . and we will develop it in the best interests of the public."
Said SDG&E; President Edwin A. Guiles: "Selling the South Bay Power Plant and our other generating assets over the next year is part of our master plan to move out of the electric generation business and keep SDG&E; firmly focused on our core mission in California's restructured electric utility industry--the safe and reliable transmission and distribution of gas and electricity to San Diego and southern Orange County."
SDG&E; has agreed not to accept any other bids on the plant for up to 60 days, while the port district evaluates the facility and negotiates the sale agreement.