Small Generators Seen Fleeing Calif. Utilities

CalEnergy wins court approval to stop selling electricity to SoCal Edision.

Published: 26-Mar-2001

SAN FRANCISCO, March 23 (Reuters) - A California judge's ruling freeing a small power company from selling electricity to Edison International's (EIX.N);USA::;EIX near-bankrupt utility may open the door for dozens of alternative-energy suppliers to sell their electricity on the open market, industry officials said on Friday.

Ten of the producers, organized as a creditors' group seeking hundreds of millions of dollars owed them by Southern California Edison, generate more than 3,000 megawatts -- roughly the electricity produced by three nuclear power plants.

Vincent Signorotti, a spokesman for CalEnergy Operating Corp., which won the court order against SoCal Edison, said other alternative-fuel companies were calling Friday asking for copies of the ruling.

He said the generators "might use the litigation as a template for their own legal action" to break away from contracts to sell their electricity to SoCal Edison and PG&E Corp.'s (PCG.N);USA::;PCG Pacific Gas and Electric unit.

FPL Energy, a unit of FPL Group Inc. (FPL.N);USA::;FPL and a member of the creditors' group, operates 1,188 megawatts of wind power generation in California. The company was reviewing the judge's ruling Friday, but a spokeswoman said, "It's difficult to market wind energy on a demand basis."

She added that PG&E and SoCal Edison together owe the company "close to $300 million."

SEEKING SOLVENT BUYERS

Covanta Energy Group, another creditor with 17 small plants, "believes it makes sense to sell our power to someone who can pay for it. It's intolerable to perform for months on end and not get paid," said a spokesman for the company.

The two utilities are saddled with more than $13 billion in debt because a rate freeze, part of California's disastrous 1996 deregulation law, blocks them from passing spiraling wholesale power costs on to their retail customers.

PG&E and SoCal Edison have argued they cannot afford to pay the generators for their power, in turn jeopardizing the finances of the producers and ultimately adding to the state's severe energy shortage.

David Sokol, chairman and CEO of CalEnery, of Brawley, Calif., told a news conference on Thursday that the ruling by Judge Donal Donnelly in Imperial County Superior Court "gives us the right to sell our power to people who can pay for it."

The company, a unit of MidAmerican Energy Holdings, in turn a unit of Berkshire Hathaway Inc. of Omaha, Neb., operates a geothermal power plant that can produce up to 268 megawatts -- enough electricity for 268,000 homes -- near the Salton Sea east of Los Angeles.

CalEnergy is part of a 680-strong fleet of smaller, independent generating units in California that provide up to one third of the state's generating capacity.

A federal law passed in 1978, when the price of foreign oil soared, encouraged development of renewable and alternative energy sources such as hydro, wind, solar, or geothermal energy.

Many new power companies -- known in the industry as "qualifying facilities" -- were formed in California and signed contracts to sell their power to the state's big utilities.

ADDING UP UNPAID BILLS

CalEnergy asked to be released from its contact with SoCal Edison, saying the utility owed it $140 million since last November 1.

The creditors group, formed in February, is owed more than $500 million by the utility, a spokesman for the members said.

PG&E, which has been making partial payments to its power suppliers, owes them more than $650 million, a spokesman for the utility said.

CalEnergy's Signorotti said that after Judge Donnelly's ruling, the company moved its geothermal power to El Paso Merchant Energy to sell on the wholesale market.

"The qualifying facilities will do what they have to do now and sell their electricity anywhere," said a California power industry official.

California officials estimate as much as 3,000 megawatts of generation owned by the smaller companies is currently off line for nonpayment, prompting Gov. Gray Davis to request a plan to ensure they are promptly paid in order to keep them solvent through the critical summer months.

That plan hit political roadblocks late Thursday and is still stuck in the state assembly pending further debate.

Davis said earlier he wanted a plan hammered out in time for the California Public Utilities Commission to consider it at the commission's next meeting on Tuesday.

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