SDG&E Revises Wind Farm Agreement

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San Diego Gas & Electric (SDG&E) revised its agreement with renewable energy developer NaturEner to buy power from the company's Rim Rock wind project in Montana.

The revision is a result of successful settlement talks with the Division of Ratepayer Advocates (DRA), an independent branch of the California Public Utilities Commission (CPUC), and the consumer group The Utility Reform Network (TURN).

SDG&E initially filed an advice letter in May 2009 for CPUC approval of the contract, which includes tradable renewable energy credits (TRECs) for a proposed wind farm near the Canadian border. SDG&E can count the green attributes of the wind power toward its renewable energy requirement.

SDG&E received regulatory approval of the contract Nov. 20, 2009, and proposed a unique tax-equity investment on behalf of utility customers in July 2010. The settlement with DRA and TURN includes several changes from what was originally filed, including the following:

– The contract size has changed from 309 MW to 189 MW;

– The capital cost in rate base is limited to $250 million or 64.99% of the project cost – whichever is less;

– NaturEner's contribution has increased to at least 25% of project costs; and

– Sempra's shareholder contribution is at least 10% of project costs.

As part of the agreement, DRA and TURN will have, among other things, the opportunity to actively participate in the due-diligence process leading to construction financial closing.

Subject to the project reaching commercial operations, SDG&E has agreed to refrain from procuring additional TRECs that are not either connected or deliverable to California through Dec. 31, 2017 – if those contracts would make up more than 25% of its renewable energy requirements.

The utility's authorized rate of return that will finance the rate-based portion of the project is expected to be considerably lower than the cost of financing with a financial institution, according to SDG&E.

The lower financing costs will be passed on to customers through a lower price for the wind power. Customer costs associated with financing the investment should be offset by the tax benefits and cashflows generated by the project, so, as a result, customers are expected to be rate neutral to this investment, according to the utility.

SOURCE: San Diego Gas & Electric

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