March 21, 2001

Davis has 11th-hour energy plan

He offers contracts to alternative plants BY DION NISSENBAUM Mercury News Sacramento Bureau

SACRAMENTO -- Gov. Gray Davis on Tuesday unveiled a last-ditch proposal to prop up hundreds of alternative energy plants that provide a crucial third of the state's electricity but have been shutting down at an alarming rate, causing two days of rolling blackouts.

With the state's nearly bankrupt utilities failing to pay for their electricity since last December, many of these alternative companies have stopped selling energy, some are suing the utilities and a few are threatening to force the utilities into bankruptcy.

Davis offered long-term contracts to about 800 providers of wind, solar and geothermal energy, but it was not immediately clear whether these contracts, which would start in April, would be enough to persuade the companies to restart their idled plants.

The Democratic governor also attacked the utilities for failing to pay their bills and proposed fining them if they refuse to do so.

In testy tones, Davis called the refusal of Pacific Gas & Electric Co. and Southern California Edison to pay their bills ``irresponsible, immoral and it has to stop.''

PG&E called the governor's comments ``inappropriate and unjustified.'' ``PG&E has paid . . . what it could in light of the frozen rates and the failure of the state to deal comprehensively with the energy issues that plague us,'' the company said.

The state has been buying power for the utilities, but not from alternative energy companies, which have been forced to keep selling to the utilities under existing contracts.

``We are anxious to pay the (companies), which are falling like flies,'' Davis said at an early evening news conference.

The deal proposed by Davis mirrors contracts offered to out-of-state generators in recent weeks. The in-state alternative energy companies will be offered five-year contracts that will pay them $78 a megawatt-hour, or 10-year contracts that will offer them 69 cents a kilowatt-hour.

The plan will be debated on Tuesday by the state Public Utilities Commission, which would have to approve it.

Davis said he hopes the deal will ensure that the companies will be paid for the energy they produce starting next month.

But the proposal does not address about $1.4 billion the companies are owed for electricity they have been providing in recent months.

Jan Smutny-Jones, executive director of the Independent Energy Producers Association, said he was happy with the governor's actions, but reserved comment on the proposal until he could see the details.

``It is important to see what the PUC action proposes to do because if they propose things that won't work, I don't want to be making promises that you'll see large amounts of resources back on line,'' he said.

In a statement, PG&E also said there is not enough money coming in from the energy it is selling to pay all its bills. Even so, the company has been paying some of the companies and offered up its own plan to continue providing partial payments for the electricity it buys.

``Throughout this crisis, our company has dealt with all creditors as fairly and forthrightly as possible,'' said Gordon R. Smith, the utility's CEO.

For years, alternative energy companies have sold their power directly to PG&E and Southern California Edison. Now that the two utilities are in a financial quagmire, the utilities have balked at paying their bills.

The companies worked with state lawmakers for weeks to fashion a complex agreement meant to bring down their prices and help resolve the state power crisis.

But the bill written by state Sen. Jim Battin, R-Palm Desert, stalled in the Legislature amid allegations that the lawmakers had loaded up the measure with special perks for companies in his district, a charge he has denied.

When the deal fell through, the companies began to put greater pressure on the utilities.

``It's just a travesty that we are not being paid,'' said Kelly Lloyd, the chief financial officer for enXco Inc., the largest wind- generating company in California.

EnXco is owed about $3 million and has shut down between 80 and 100 turbines because it cannot afford to fix them, Lloyd said.

Without a quick fix, he said, the company could have to force some workers to take time off and could lose half of the 300 megawatts of energy it produces for the state.

At the same time, enXco has helped form a creditors committee that includes members such as the Coram Energy Group that appear ready to force the utilities into bankruptcy court. Coram would need only formal support from two other companies to force the issue.

While some companies were pressing their case in the halls of the Capitol, another was pushing the matter in the halls of justice.

Cal Energy Operating Corp., which sells about 270 megawatts of energy to Edison, has sued the utility.

The company is looking to break its contract with Edison and collect the more than $75 million it is owed for selling the utility electricity.

The company will be in an Imperial County court on Thursday where a Superior Court judge could allow Cal Energy to break its contract.

If not, Cal Energy's president warned, he may be forced to take Edison into bankruptcy.

``If we don't get a court ruling on Thursday, I don't think that we'd have much of a choice other than to put Edison into bankruptcy,'' said David Sokol, chairman of Cal Energy.

Davis and state lawmakers expressed hope that the PUC action would help resolve the immediate crisis and prevent more blackouts.

But Assemblyman Fred Keeley, D-Santa Cruz, who has played a critical role in trying to resolve the energy crisis, said that the problem can no longer be resolved without a rate increase. ``Rates are going to go up,'' Keeley said. ``It's inevitable.''

http://www.siliconvalley.com/docs/news/depth/power032101.htm

-------------------------------------------------------------------------------- Mercury News Staff Writer Mark Gladstone contributed to this report.

-- Martin Thompson (mthom1927@aol.com), March 21, 2001