Geysers Unit 18

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The geothermal user's viewpoint in this case is somewhat unique. San Diego Gas & Electric Company, by virtue of its activity in geothermal exploration and development since 1972, is in a position to be considered not only a user of geothermal, but a producer as well through the activities of its wholly-owned subsidiary, New Albion Resources Co. As the Supervisor of Fuel Development of SDG&E and the General Manager of NARCO, I can speak from experience on both sides of the negotiating table. I have given advice from the user's point of view to SDG&E's fuel acquisitions people as they ... continued below

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5-18-5-25

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Finney, John P. December 1, 1980.

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The geothermal user's viewpoint in this case is somewhat unique. San Diego Gas & Electric Company, by virtue of its activity in geothermal exploration and development since 1972, is in a position to be considered not only a user of geothermal, but a producer as well through the activities of its wholly-owned subsidiary, New Albion Resources Co. As the Supervisor of Fuel Development of SDG&E and the General Manager of NARCO, I can speak from experience on both sides of the negotiating table. I have given advice from the user's point of view to SDG&E's fuel acquisitions people as they labored to negotiate a contract to buy from a geothermal producer of hot water. As General Manager of NARCO, I am in the position of developing geothermal resources and negotiating contracts to sell some of NARCO's heat to third parties. So much for the introduction--How does a utility, such as SDG&E, view risk in today's business climate? The answer to that question is very simple. SDG&E has an allowed rate of return of 10.59%. This is based upon 48% debt, having an imbedded interest cost of 8.1%; 14% preferred stock, at a cost of 8.2% and 42% equity. Out rates are supposed to return 14-112% on this equity. Let me put these numbers in perspective. In early March SDG&E sold $50 million of mortgage bonds which bear an interest rate of 16%. In mid-March we sold 2-112 million shares of common stock for $11.50 per share. The current dividend of $1.52 will yield 13.2% and those dividends are paid after taxes. When money borrowed to build a project costs more than you can earn on the project, there is no incentive to build that project and certainly no incentive to take any risk associated with the project. How does SDG&E view risks? Simple--don't take any risks which can be avoided. Is this attitude likely to change? My forecast is, there is no change in sight. Does this take SDG&E out of contention as a possible market for producers of geothermal energy? Not likely. For all of its risk aversion, SDG&E still remains one of the best potential markets for any energy producer. A recent article in FORBES MAGAZINE found that SDG&E had the third highest price per kilowatt of any utility in the country--5.9{cents} per kilowatt hour for commercial customers. That was in March, 1980. Energy cost adjustment clause increases resulted in an average commercial price per kilowatt hour of 7.2{cents} in May. In July it is expected to climb to 9.2{cents}. SDG&E's rate territory continues to expand at the rate of 5% annually and it is located just over 100 miles from a major source of geothermal heat in the Imperial Valley. But today, SDG&E has no commercial geothermal heat or power purchase contracts with domestic producers. You may ask, ''Why not?'' With no incentive to spend its own money and with a high growth rate, what is SDG&E doing to obtain capacity for its existing and future customers? At the present time, most of SDG&E's capital expenditure for generation is going to the construction of San Onofre Units 2 and 3 , a nuclear project which has been under way for ten years and which is expected to start generating commercial power in 1982 and 1983. San Onofre 2 and 3 will add 440 MW of capacity from a reliable, proven generating technology to SDG&E's system.

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  • Proceedings of the Fourth Annual Geothermal Conference and Workshop, Conference Proceedings, December 1980

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  • Report No.: EPRI-TC-80-907-25
  • Grant Number: None
  • Office of Scientific & Technical Information Report Number: 892107
  • Archival Resource Key: ark:/67531/metadc876606

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  • December 1, 1980

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  • Sept. 21, 2016, 2:29 a.m.

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  • Dec. 5, 2016, 6:24 p.m.

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Finney, John P. Geysers Unit 18, article, December 1, 1980; United States. (digital.library.unt.edu/ark:/67531/metadc876606/: accessed November 20, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.