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Lengthy CA Plant Permitting Scares Off Investors

Lengthy CA Plant Permitting Scares Off Investors

Ground was broken last week for a $275 million, 540 MW natural gas-fired power plant in Arizona by San Jose, CA-based Calpine Corp., and close observers of the California electric restructuring are indicating this may be the start of more to come throughout the Southwest.

California's cumbersome power plant siting process ultimately is going to increase the numbers of new merchant plants in the surrounding states as a result, several observers said. There are fewer economic hurdles for out-of-state plants selling into the California grid, assuming gas supply availability and electric transmission bottlenecks are not a problem.

Calpine will be shopping for gas supplies totaling about 90 Bcf annually for this power plant, which is located less than a mile from El Paso and Transwestern interstate pipelines near the convergence of the California, Nevada and Arizona borders. It expects to finalize gas supply deals during the construction of the plant on the Ft. Mojave Indian Reservation. The plant, called the South Point Power Plant, is scheduled to begin operating early in 2001 as the first merchant electric plant on an American Indian reservation. It will sell power in Arizona and Nevada in addition to the California market.

The investment community reportedly is losing interest in California power plant projects because of the added permitting time and environmental restrictions relative to other states. "I am doing business coast-to-coast," said one national energy manager for a major industrial operator. "And I can build a power plant anywhere I want in two years time and have it online a year faster than I can in California. The differential is the permitting. I hope California is not using the federal two-year time frame for permitting as a model that indicates their one-year process is okay. It doesn't make them look very good compared with states you can get through in three to six months. It's pretty sad."

Actual permitting time for the Arizona project took about 14 months, according to Calpine's environmental specialist, Ed Merrihew, noting that there is a lot of required public involvement in the process of reviewing draft environmental impact statements (EIS). "All this takes time, and I don't think it can be done in six months, but I think the usual time for an EIS process-start to finish-is twelve months. If you ran into problems, it might take 18 months. If you said 12 months in California, you would be lying, however. You would be looking at 18 months-plus in California from my experience."

Calpine's first new gas-fired plant to gain state approvals in California in Sutter County north of Sacramento took more than two years undergoing the California Energy Commission's stringent environmental processing. "That is easily 18 to 24 months," Merrihew said. "Trying to get this project in California would have taken three years."

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