Mountainview Costs Soared $650 Million

The price of the Mountainview power plant has risen from $50 million in 2002 to an expected $703 million in 2006. Mountainview?s interim owner would not say how or why the price ballooned, but its new owner, Southern California Edison, maintains it will still result in savings for customers. Before Edison committed to buying the facility March 1, the Mountainview plant had two owners. Its original owner, AES, sold the plant to InterGen for $30 million in early 2003. InterGen owed AES another $20 million payment upon ?certain milestones.? AES sold the plant at essentially a loss. In the last quarter of 2002, the company took a pretax ?impairment? charge from the plant of $415 million. An impairment is a determination by a company that its investment was not worth the original value the company expected from it. Thus, AES took a one-time charge against earnings for the $415 million difference between early market expectations at the onset of deregulation and its 2002 value. InterGen ?just bought the plans and California Energy Commission approval,? said InterGen attorney Bill Kissinger of Bingham McCutchen. Meanwhile, InterGen (a Shell-Bechtel venture) built 15 percent of the plant and spent $100 million to complete purchases of equipment for the property, he added. He would not reveal the total investment in the plant. However, if one takes 15 percent of $700 million, plus the equipment acquisitions and purchase cost, the plant cost InterGen in the $300 million vicinity, which leaves a several-hundred-million-dollar gap compared to the expected $703 million cost to consumers. According to a source close to the finances, those numbers are not off the mark. Edison did not buy the plant for $703 million?that is the expected price of its completion in 2006. The utility would not say how much it paid for the plant. In addition to InterGen?s undisclosed price, there is also the cost of two turbines, residual contracts, and the administrative and labor costs to complete the facility. Edison maintains it will complete the plant by March 2006 for $600 million plus another $103 million in contingencies and construction interest. While some consumer advocates support Edison?s Mountainview procurement because the price is considered appropriate, The Utility Reform Network attorney Matt Freedman would not detail how the consumer group sanctioned the balance between the cost of the plant and the expected cost to ratepayers. ?We were told for four months that this was a great deal,? said Joe Ronan, Calpine senior vice president. During that time, the California Public Utilities Commission kept secret the plant?s eventual price. Just before the commission approved Edison?s acquisition of the plant in December 2003?to be owned by an unregulated subsidiary?the $703 million cost to ratepayers was revealed in commission documents. ?But it turns out when you put all these things together?where did the money go?? Ronan asked. Power plant developers, according to California Energy Commission documents, build plants the size of Mountainview on the same economic plane as Edison?s planned cost. Yet it appears to be quite a good deal for Edison shareholders for such an average development price. According to Morgan Stanley in a March 1 report, shareholders are expected to reap $1.70/share as a result of the Mountainview deal. ?With $1.70/share to shareholders? pockets, it?s amazing the CPUC thought that was fine,? said Ronan. ?The cost is significantly less than siting a new power plant from scratch,? said Edison spokesperson Gil Alexander. He said it?s cheaper to ratepayers because of the $415 million write-off AES took on its initial investment, which apparently reduced the cost of the plant to Edison.

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Mountainview Costs Soared $650 Million

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