Upcoming PUC Decision to Shape Future of Energy : Resources: For Magma Power, it could mean a chance to expand; for other producers of alternative energy, it could mean the chance to survive.

Magma Power, a San Diego geothermal power company, will be watching a state Public Utilities Commission decision due out early next month a lot more closely than most other edicts issued by the regulatory agency.

That’s because the decision will have a direct bearing on how Magma Power and other alternative-energy producers do business over the next decade. For many producers of geothermal, wind and solar power, the decision and how it is worded could mean the difference between profits and oblivion.

For Magma Power, a profitable geothermal company with four plants, generating a total of 156 megawatts in the Imperial Valley, the decision won’t mean corporate life or death. With technical and financial assistance from its 42% shareholder, Dow Chemical, Magma Power has become one of the strongest independent energy producers in the nation.

The company announced just last week that it will build a 17-megawatt geothermal facility in Western Nevada whether or not it gets a favorable nod from the PUC. The $40-million facility will increase Magma Power’s owned power capacity by 20% when complete in 1995.

But the PUC decision will have a big impact on the pace and direction of Magma Power’s growth, chairman and chief executive Paul Pankratz said Friday. A favorable decision could represent the green light to build two more geothermal plants in the Imperial Valley, totaling 80 megawatts.

The decision will also have an impact on Magma Power’s strategic goal of expanding into cogeneration, an energy process in which the heat generated in manufacturing or power generation is used for secondary heating or power purposes.

The much anticipated PUC decision, called the Biennial Resource Plan Update (BRPU), comes at a historic low point for alternative-energy producers who are smarting from the expiration of previous government subsidy programs and from the steadily dropping prices of natural gas, their chief competing power source.

The BRPU is expected to lay out how much of the future power capacity of the state’s investor-owned utilities--San Diego Gas & Electric Co., Southern California Edison Corp. and Pacific Gas & Electric Co.--must be supplied from alternative-energy sources.

If the decision follows the recommendations issued in February by two administrative law judges, the utilities would have to reserve a certain percentage of additional power capacity for competitive bidding by outside, independent producers of cogeneration and “renewable” power sources such as geothermal, solar and wind energy. The decision will incorporate the mandate of Assembly Bill 1090, passed last year.

The PUC edict will also specify a cost against which alternative producers can bid that represents the utilities’ bids for the power. The bids of the independent producers would be enhanced by so-called “environmental adders,” or costs that would be tacked on to natural gas and other fossil fuel sources.

SDG&E;, for example, would have to accept outside bids for 473 megawatts of additional power, or 28% of the utility’s projected load growth through 1999, according to the law judges’ recommendation.

Southern California Edison would have to open up 735 megawatts, or 16% of its additional power requirements, to bids from alternative energy sources, and Pacific Gas & Electric would accept bids for 243 megawatts, or 7% of its added capacity.

The utilities are contesting the judges’ proposed decision, with SDG&E; insisting that the benchmark costs are too high, making it too easy for alternative-energy companies to come in with successful bids--and at too high a cost to ratepayers.

“The target pricing against which the ‘renewables’ would bid is too high by 40%” in the judges report, said Robert J. Resley, SDG&E;’s director of electric resource development. “It would be an unlevel playing field that goes downhill against our customers to the tune of $500 million.”

Alternative-energy producers make no bones about needing advantages to compete. A geothermal energy plant costs three times what a natural-gas-burning power plant costs to build, Magma Power says.

But the extra costs are made up for by the environmental advantages of geothermal, wind and solar and by addressing the long-term imperative of developing alternative energy sources for the day when fossil fuels are depleted, proponents say.

Whatever form the PUC decision takes, it is expected to provide Magma Power and other alternative-energy producers with the most significant government incentives since the expiration in 1985 of Standard Offer 4 contracts, a federal program that called on utilities to buy power from outside energy companies at fixed, escalating rates.

With signed SO4 contracts with Southern California Edison in hand, and backed by the financial and technical muscle of Dow Chemical, Magma Power was able to secure $210 million in financing to build three plants, all of which were on line in the Imperial Valley by early 1990.

But the expiration of the SO4 program, the excess power capacity of most California utilities in recent years and the steadily dropping price of natural gas combined to make the current market a difficult one for alternative energy.

Geothermal producers active in the state number less than a dozen--half the number eight years ago, said David N. Anderson, executive director of the Geothermal Resources Council, a nonprofit industry association. Wind and solar companies have also dwindled because of the difficult competitive climate and low cost of natural gas, he said.

“The BRPU as written by the judges means that renewable energy can compete. Without it, we’d be sunk,” Anderson said. “We’ve got to maintain our domestic industry for the day when the price of natural gas goes up. And it will.”

Geothermal energy now accounts for about 4% of the state’s power capacity, Anderson said.

How the PUC will rule is the subject of much speculation in the power industry.

“The fact is, the final decision on these vital questions has not yet been made, so it would be highly improper to be discussing commission deliberations,” PUC President Daniel W. Fessler said Monday.

In the PUC’s final decision, Fessler said, the commission will have to balance the benefits of long-term investments in alternative energy sources with shorter-term economic advantages. Those economic considerations are paramount these days, given the recession and industry complaints that California’s business climate is less than hospitable.

Economic considerations are a big reason why the PUC is looking closely at “demand-side management,” the phrase used by utilities to describe the process of meeting increased demand partly with energy that is saved through conservation. The obvious economic advantage of demand-side management is that a much smaller investment is required to meet future power needs, he said.

But Fessler said persuasive arguments about how best to supply California’s future energy needs can be and have been made by people with widely diverging viewpoints.

“People who have a one-dimension perception of this will tend to try and say it’s all very simple,” Fessler said. “The fact of the matter is, every one of these individuals has a piece of the truth. . . . I am the person in the non-enviable position of being in the epicenter of all these conflicting arguments.”