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OTAY MESA ENERGY CENTER, LLC CALPINE CORPORATION

717 Texas Avenue, Suite 11.050 717 Texas Avenue, Suite 1000
Houston, TX 77002 Houston, TX 77002

April 4, 2019

Re: R.17-06-026 (RA)/A.17-10-007 (SDG&E GRC): Notification re Exercise of Put Option


for Otay Mesa Energy Center (OMEC)

To Interested Parties in R.17-09-020 and A.17-10-007:

On February 25, 2019, the Commission issued Resolution E-4981, which approved of a 59-month
resource adequacy contract (“Confirmation”) between San Diego Gas & Electric Company’s (“SDG&E”)
and Otay Mesa Energy Center, LLC (“OMEC”). The Commission found “the Confirmation just and
reasonable and necessary to ensure the reliable operation of the grid.” Resolution E-4981, at 8.

OMEC and, as the indirect owner of OMEC, Calpine are taking all steps to effectuate the Commission’s
decision and attempt to ensure that the Confirmation becomes effective and deliveries of resource
adequacy commence on October 3. If and when all conditions precedent in the Confirmation are
satisfied, OMEC still intends to relinquish its option to sell the OMEC facility to SDG&E under the
Sublease and Easement Agreement (“Sublease”) the Commission approved in D.06-09-021.

One of the conditions precedent to effectiveness of the Confirmation is Resolution E-4981 becoming final
and non-appealable. Unfortunately, on March 27, Protect Our Communities Foundation (“POC”) filed a
meritless Application for Rehearing of Resolution E-4981. POC’s decision to file the Application for
Rehearing frustrates the Commission’s direction that SDG&E proceed with the Confirmation rather than
purchase the OMEC facility pursuant to the Sublease. Given that the put option in the Sublease would
have expired on April 1 and the Confirmation is not yet effective because of POC’s appeal, OMEC was
forced to exercise its right to sell the Otay Mesa facility to SDG&E. The parties will now commence with
a pre-ownership due diligence process, however, pursuant to the terms of the Sublease, OMEC’s sale of
the Otay Mesa facility will not occur until October.

OMEC and Calpine will continue to use their best efforts to ensure that the Confirmation becomes
effective and the sale of the Otay Mesa facility to SDG&E does not have to occur. As the Commission
has recognized, the Confirmation is in the best interests of SDG&E ratepayers as well as the newly-
forming community choice aggregators in SDG&E’s service territory.

Sincerely,

Avis Kowalewski
Vice President, Government and Regulatory Affairs
Calpine Corporation