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Power Plant Project On-Line Despite Bankruptcy

Construction of a Calpine power plant in Otay Mesa will continue despite the company’s recent bankruptcy filing, a company official said.

Calpine, a San Jose-based power producer, has plans to construct a 600-megawatt plant in South County and is scheduled to begin providing power to 600,000 San Diegans in January 2008. It would be one of the first large-scale power plants built in the region in more than 25 years.

But the company declared Chapter 11 bankruptcy Dec. 20 and is in the midst of restructuring more than $17 billion in debt. The company had been trying to stave off bankruptcy after a Delaware court ordered it to pay $312 million it had misspent on fuel supplies.

“Operations will continue,” Calpine spokesman Kent Robertson said. “The business will continue. Who’s to say what decision will be made down the road or what regulators will decide. But from our perspective, the project continues.”

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The project has been delayed before. The $500 million station was slated to open in 2003. But the company pushed back the date to 2004 and again to 2008.

Several factors were responsible. The company’s capital tightened. The electricity market changed after the 2000-01 energy crisis.

And while the company saw several power plants finish construction and begin operating, it was also faced with rising debt from building them. The company’s revenue continued to rise , it generated $9.2 billion in 2004 , but its profit continued to drop. Calpine reported profits of $355 million in 2004, down from $1.5 billion three years earlier.

Despite that, Robertson said Calpine is making “measured progress” on construction at the 46-acre site. The foundation has been poured, he said, and some excavation is finished.

If the Otay Mesa project isn’t developed, it would have “somewhat significant” implications for the San Diego region, said Michael Shames, the executive director of the Utility Consumers’ Action Network, a locally based utility watchdog.

Because power from the plant isn’t expected for several years, San Diego Gas & Electric Co. would have time to develop alternate sources, Shames said, or build the plant on its own.

“It doesn’t thrust us into a crisis scenario,” Shames said. “But it’s certainly an issue that needs immediate attention.”

UCAN has challenged the contract between SDG & E; and Calpine; that matter is pending before the California Public Utilities Commission.

SDG & E; officials did not return a call for comment.

When the bankruptcy occurred, Calpine Chief Executive Officer Robert P. May said normal operations would continue and the company’s employees would continue being paid.

“Our plan calls for power plants to remain available for operation to provide reliable supplies of electricity,” May said. “We intend to move through the restructuring process as quickly as possible, to regain our financial health and to take the necessary steps to become a stronger and more competitive energy provider.”

The company has already received commitments for $2 billion in financing from Credit Suisse First Boston and Deutsche Bank.

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