By Ann de Rouffignac
OGJ Online

HOUSTON, May 30, 2001 — After a year-long stand off over the proposed Metcalf power plant, Calpine Corp. and San Jose, Calif., Mayor Ron Gonzales reached an agreement Wednesday that will cost Calpine at least $6.5 million in concessions for the plant to go forward.

Calpine agreed to contribute a number of community "benefits" to San Jose in return for the mayor's support. The San Jose city council still has to vote on the power plant.

Concessions by Calpine include:

— Reduce or eliminate the use of liquid ammonia in the pollution control equipment as soon as technically and economically feasible.

— Provide two air quality monitoring stations at sites to be selected by the city.

— Reduce the annual start ups of the plant by 25% during the first 5 years of operation. The plant was permitted for 600 starts.

— Form an advisory committee with school, local community, and business members to give input during construction and operations of the plant.

— Agree not to expand the footprint of the plant.

— Provide competitive long-term power contracts to San Jose businesses.

— Apply for "reliability must run" status with the California Independent System Operator as soon as possible so the energy would be committed to the San Jose area.

— Give the city $5 million for parks; $1 million to help subsidize electricity bills of for low income residents; and contribute $500,000 to a fund for health insurance for uninsured children.

— Pay Calpine's share of extending a pipeline for recycled water to other industrial users.

— Pledge to cooperate with cities to get state legislation passed that would give communities certain benefits for hosting power plants.

Long process
"This has been a long process and we are relieved it's over," said Ken Abreu, development manager for Calpine's Metcalf plant.

The city had blocked the proposed 600 MW gas-fired power plant from its inception for "health" reasons because neighborhood groups opposed building the plant in south San Jose. Mayor Gonzalez was among the most vociferous opponents of the project and questioned the need for it despite the state's well publicized power shortage.

The Metcalf plant received the endorsements of the American Lung Association, the Sierra Club, the California Independent System Operator, the California State Assembly, and the staff of the California Energy Commission (CEC). When that still wasn't enough to convince local authorities to support the project, some began referring to it as the poster child for why California was suffering from a supply shortage.

The full commission was set to make a final recommendation on the proposed plant in June. The CEC could have overridden local authorities and allowed the plant to be constructed. But there is some doubt whether the CEC could have forced the city to sell Calpine wastewater needed to operate the power project.

"It would have been a very contentious issue, if we could not have gotten water and sewer connections," said Abreu.

Some of the concessions made by Calpine limit the facility's flexibility to serve as a merchant plant, especially the reduction in the number of start times and the application for reliability must run status that places the plant on a different tariff with the ISO. Moreover, the plant can only raise output by improving efficiency.

Details on the long-term electricity contracts to be arranged with local business have not been worked out yet, Abreu said.