Under the terms of the agreement, San Jose-based Calpine will build, own and operate the Otay Mesa Generating Project, and PG&E's National Energy Group will contract for up to 250 megawatts of the project's output. In a joint statement, the two companies say they hope to bring the project on-line as soon as possible, providing much-needed electricity supplies to Southern California. Both companies ultimately will sell power from the plant to the California market.

The project "will be the first new power plant built in San Diego County in almost 30 years," says Thomas B. King, president/CEO of the western region of PG&E's National Energy Group.

"As we saw last summer, when a shortage in generating capacity led to high prices for consumers, there is a clear need for new generating capacity in the region," he adds.

The project will be located within a 46-acre property on the eastern portion of Otay Mesa, near the base of the San Ysidro Mountains, about 1.5 miles from the Mexican border. King says PG&E and Calpine will work closely with regulators to move the project forward and meet the mid-2003 target date for making the facility operational.

"This project will improve the supply-demand balance in San Diego's electricity market and will maintain the region's environmental quality," adds Calpine VP Peter Camp. "Otay Mesa is an important part of Calpine's plans to rapidly develop clean, economic sources of electricity for Californians."

The Otay Mesa facility will be fueled with natural gas and include state-of-the-art emission control equipment and water conservation technology.

Under the terms of its agreement, PG&E will complete the process of licensing the plant. The project is in the final stages of review by the California Energy Commission, which is expected to decide early next year whether to issue a construction license. Once the project is licensed, ownership will be transferred to Calpine. Construction is expected to begin in the third quarter of 2001.