Generators Scrambled to End Pacts With Utilities

In filing for federal bankruptcy protection last week, Pacific Gas & Electric Co. determined what other power producers had already concluded: The state had failed to solve their payment problems and the time had come for the courts to step in.

In the days leading up to PG&E;’s Bankruptcy Court petition, a growing number of alternative energy producers had also been filing lawsuits, seeking to be freed from their contracts with PG&E; and Southern California Edison. The litigation was triggered in part by a controversial new rate plan imposed last month by the state Public Utilities Commission in addition to millions of dollars of debt owed to the producers by the utilities.

On Tuesday, Dynamis Inc. filed suit in Fresno, saying PG&E; owes it $3 million.

Carson-based Watson Cogeneration Co., one of the state’s largest alternative energy producers, also had filed suit to have its contract with Edison suspended. So did Delta Power, which owns five small gas-fired plants in California. Both producers are owed tens of millions by Edison.

At least a dozen such suits have been filed in civil courts, and lawyers warn that more could be on the way.

“Tough solutions were not being brought to the equation, which left PG&E; and others feeling they were better off in the court system,” said Jerry Bloom, an attorney for the California Cogeneration Council.

The court actions come on the heels of an order by the PUC last month that Edison and PG&E; begin fully paying hundreds of small alternative energy producers. But some producers say that a new rate plan issued by the PUC would force them to operate at a loss and that nothing has been done to address the about $1.5 billion owed to members of the group by PG&E; and Edison.

Lawyers say other producers have served Edison with notices that they plan to cancel their contracts.

Gas-fired generators account for about two-thirds of the electricity produced by the alternative energy group.

The California Independent System Operator, keeper of the state’s power grid, reports that there continues to be a roughly 3,000-megawatt reduction in output from the alternative energy producers. The daily sum is enough power to supply 2 million to 3 million typical homes.

“It clearly shows the problem hasn’t been fixed,” said Jan Smutny-Jones, executive director of the Independent Energy Producers.

California is home to nearly 700 producers of alternative and renewable energy, which as a group provide more than a quarter of the electricity used by consumers.

Some of the producers have gone offline or reduced supplies for maintenance reasons, but others have cut back because they have not been paid by Edison since November or have received only partial payments from PG&E.;

The drop in output has at times forced the state to purchase replacement supplies on the pricey spot market for electricity and contributed to rolling blackouts last month. The latter event prompted Gov. Gray Davis to propose a plan to get the generators up and running again.

Consequently, the PUC established a new rate plan for the producers and ordered the utilities to begin fully paying them beginning this month. The payment goal would be accomplished in part by slashing the rates that PG&E; and Edison must pay the producers.

But the PUC action appears to have compelled a growing number of gas-fired generators to file lawsuits in an effort to be released from their contracts with the utilities and be paid the millions they are owed.

Bloom contends that the new rate plan will force some producers to operate at a loss because it does not adequately compensate for their gas expenses. He said he expects generators to challenge the plan in court or before the Federal Energy Regulatory Commission.

Smutny-Jones contends that the plan wrongly assumes that all natural gas used by his members can be piped in from the Oregon border, where the price of natural gas is cheaper. The producers, he added, are seeking assurances that they will be paid realistic rates by the utilities for future deliveries.

Utilities are scheduled to pay the first round of reduced rates, as ordered by the PUC, early next week. Both utilities have indicated that they plan to make the first round of payments.

Edison officials said Friday they have been served with 10 producer lawsuits. They say they fear that if the generators are let out of their contracts, they could sell their supplies out of state, which could in turn cause rates to rise for California consumers because it would reduce supply.

PG&E; spokesman John Nelson said in an interview last week before the bankruptcy filing that PG&E; has been served with two such lawsuits. He said his company is also concerned about the PUC rate plan and whether it truly lowered the rates PG&E; must pay the alternative producers and whether there would be enough money in the rates paid by customers to turn around and pay the producers.

“We’re concerned that the commission decision does not solve the problem,” Nelson said.

A Davis spokesman said last week that the administration is still working on the issue of money owed to the producers and that the administration is continuing to work with the PUC to get more generators back online.

Observers believe the number of producer lawsuits will grow because most cases to date have been aimed at Edison. The utility has not paid its producers since November and has fought to have its rates slashed.

By comparison, PG&E; has made efforts to partially pay its producers in recent months and to keep them informed of their financial situation.

A Bankruptcy Court is expected to decide whether to affirm the contracts of producers who sell to PG&E; or to free them to sell their power elsewhere.

An Imperial County judge has already freed CalEnergy, a small geothermal producer, from its contract with Edison because of Edison’s failure to pay the company. The court has delayed ruling on CalEnergy’s request for $99 million in back payments until April 16--the day the utility is expected to begin paying its alternative generators.

Since it quit transmitting 270 megawatts to Edison last month, CalEnergy has been selling its electricity to El Paso Energy, a marketing company that resells power on the spot market. If other generators are able to repeat the pattern, it could further reduce state energy supplies, particularly this summer, when every megawatt will be needed to avoid blackouts.