Independent Power Producers Win Ruling : Energy: Utilities say the PUC order forcing them to buy the electricity will boost consumer rates. Edison vows to file suit.

In a surprisingly tough decision, the California Public Utilities Commission said Wednesday that it will stick to its plan to force California’s investor-owned electric utilities to sign contracts with independent electric-power producers.

The decision is a major victory for producers of alternative energy and is likely to affect utility rates in California for decades to come. The independent producers--who make electricity from fuels ranging from natural gas to wind to geothermal heat--said the ruling could free up financing for $1.5 billion worth of construction projects in the state.

“We’re exhilarated,” said Douglas Kerner, an attorney for the Independent Energy Producers Assn. in Sacramento. “The maneuvering of the utilities, and Edison in particular, have cost--in addition to litigation expense--essentially a year delay in getting these projects moving.”

However, an angry Southern California Edison Co., which says it doesn’t need the power, announced that it will sue the commission over the decision--which the utility says could cost its ratepayers $1 billion in higher rates in 1997 through 2003 alone.

San Diego Gas & Electric Co. said it is also contemplating a lawsuit and that the ruling could cost its ratepayers an extra $58 million annually for the life of the contracts, some of which extend for 30 years.

SDG&E; agrees that it needs more power in the future, but “not at this price. . . . We think the decision is ludicrous,” said Ed Guiles, senior vice president of energy supply for the utility.

The new power-purchase contracts are the result of a process begun more than five years ago by the PUC and trace their roots to the state’s support for alternative domestic energy sources resulting from the oil shocks of the 1970s.

In a complex bidding process criticized by the utilities as non-competitive, independent producers and the utilities themselves submitted bids to meet estimated future power needs. The independent producers say the bidding amounted to the first real test of competition in the state’s electric utility business.

The independents submitted the lowest bids, but the process remains hotly contested. The PUC said Wednesday that it will hold a new hearing on details of the bids from wind-energy producers.

Much of the debate centers on how much new energy, if any, the utilities will need in the future--and at what price. Under the current PUC scheme--which will probably fall by the wayside later in the decade as the industry is deregulated--the agency decided what the state’s investor-owned utilities would need, then designated a portion of those needs for the independent producers to fill.

Edison has always said it doesn’t need the new power that the PUC says it needs. The PUC and the independents say Edison may not need the power to keep Southern California’s lights burning, but it does need to replace some older, more expensive generation plants with the cheaper independent power now available with new technologies.

Edison executives deny that and say the new contracts would lock customers into long-term higher rates just as deregulation is about to bring power prices down.

“We will do whatever we have to do” to avoid signing the contracts, said Don Fellows, Edison manager of non-utility contracts. Wednesday’s order apparently requires them to be signed before Jan. 30.

Fellows said the utility expects to file suit within days against the commission, charging that it has failed to follow federal law in assessing demand for new electricity.