Bright Prospects for Green Alternatives Dim

For a while there last year, CalWind Resources Inc. was humming.

Thanks to soaring demand for power and skyrocketing prices, the tiny Westlake Village company’s two Kern County wind farms generated their most robust profits ever.

Then CalWind’s main customer, Southern California Edison, stopped paying its bills.

Small energy producers for years have eked out a living on the margins of California’s energy market. Collectively, however, they provide almost a third of the state’s power. Suddenly this past year, hundreds of providers that generate electricity with solar panels, windmills and even farm waste started to make serious money.

Just as suddenly, they have found themselves being blamed for part of the financial woes faced by the state’s electric utilities.

Now, as state legislators negotiate to cut by more than half the price Edison will pay alternative energy producers for future purchases, CalWind President Doug Levitt was seeing his windfall turn to disaster. He may never see the more than $400,000 that Edison owes his company, but the proposal, he said, is better than nothing.

“It’s just sad that I’ve had to live on crumbs for all these years and we finally see some light and then they change the rules,” he said.

Most of California’s electricity is generated by conventional power plants--hydroelectric, natural gas, nuclear and coal-burning. The small producers gained a foothold to compete with those dominant sources with the passage of a 1978 federal law. The statute compelled utilities to buy power from alternative sources, creating a market for renewable energy.

California regulators set their rates high, basing them in part on inflated projections for oil and natural gas prices. When prices retreated, electricity from so-called green alternatives became expensive at a time when conventional plants provided more than enough power.

The independent providers endured one dismal season after another through the 1990s. Then last summer, the crisis began. Demand for electricity, whether generated by the sun, wind or factory steam, began to climb.

“As the capacity margins went down precipitously, the proportion that we, as a sector, provided became more important,” said Dean Vanech, president of Delta Power Co., a New Jersey company that operates five cogeneration plants in California. Electricity at those plants is generated with heat from the manufacture of other goods.

Prices paid to independent producers also took off. It seemed as if the renewable power industry was poised for its first significant growth in decades.

That hope was smashed when Edison stopped paying its contractors in November and Pacific Gas & Electric warned that it might have to do the same. Now, Edison owes these providers about $700 million, according to the Independent Energy Producers, an industry trade group.

Alternative producers burning wood or natural gas are squeezed between their main customers’ refusal to pay and wary fuel suppliers, who are even demanding payment in advance.

“We’ve had to shut down one plant in Carson because of our inability to pay for fuel,” Vanech said. “This has been a big bump in the road.”

Utilities have argued that their long-term contracts with independent energy producers are overly expensive, far exceeding what either Edison or PG&E; is permitted by the state to charge its customers.

In the deal under discussion in the state Legislature, Edison would pay independent energy producers about 7.8 cents per kilowatt-hour, about half of what it is now being charged. Lawmakers called the price reduction crucial to preventing consumer rate increases, as well as for keeping Edison from bankruptcy.

“They knew they would rather deal with a recovering utility than a bankrupt one,” Sen. Jim Battin (R-La Quinta) told the Senate Energy Committee on Monday. “So they are willing to cut more than 50% of the rate.”

Even as independent producers moved to embrace the deal, suspicions remained.

Edison is trying to use the electricity crisis to get out of its long-term contracts, said Jan Smutny-Jones, executive director of the Independent Energy Producers.

If the deal goes through, the rates paid alternative producers last summer and fall may be gone forever.

By the time the new contract’s proposed five-year term expires, a raft of new power plants will have come on line and the state’s capacity crunch may be a distant memory, said William Carlson, general manager of Wheelabrator, a Redding firm that operates five wood- and gas-burning plants. “It was nice while it lasted,” he said, “but everyone knew it couldn’t go on forever.”

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Times staff writers Miguel Bustillo and Nancy Vogel contributed to this story.