More Unpaid Power Plants Face Closing

Owners slam PUC silence about bills

David Lazarus, Chronicle Staff Writer

Thursday, April 5, 2001, ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/05/BU224271.DTL

As state officials struggle to reduce California's mounting energy debts, smaller power companies warned yesterday that more plants will shut down -- increasing the likelihood of blackouts -- until they get paid all the money they are owed.

The California Cogeneration Council, an association of small, gas-fired plant owners, appealed to the Federal Energy Regulatory Commission for help in recouping sky-high operating costs from utilities.

The council's move followed a lawsuit filed Tuesday against PG&E Corp. by one plant operator, Dynamis Inc. The company charges that it was forced to shut down because PG&E has yet to pay for more than $3 million worth of power.

"You're going to see more lawsuits and more plants closing," council Executive Director Ann MacLeod said in San Francisco. "The blackout situation is just going to get worse."

Smaller generators -- known in industry parlance as "qualifying facilities" or "QFs" -- are owed hundreds of millions of dollars by PG&E and Southern California Edison for electricity received since last fall.

Half of the roughly 600 QF plants were shut down last month, contributing to rolling blackouts throughout the state. The plant owners said they were unable to pay for the natural gas needed to keep their facilities running.

In response, the California Public Utilities Commission voted last week to require utilities to pay the QFs for all future power purchases. However, the PUC avoided the thornier question of money already owed to the generators. It also changed the way smaller generators calculate their costs, lowering the amount that can be charged for natural-gas expenses.

Moreover, the PUC has yet to determine how the limited funds collected from ratepayers will be divided among the various parties now in line with their hands out -- QFs, utilities and the state itself, which has spent more than $4 billion purchasing juice on behalf of PG&E and Edison.

A final decision still may be weeks away. Nevertheless, PUC members trumpeted last week's order as a solution to all the QFs' troubles. "At a time when every megawatt is needed, we cannot afford for any production to be lost due to lack of payment," Commissioner Carl Wood said.

"This allows us to get supply back online," PUC President Loretta Lynch agreed. "It will get the lights back on in California." Or will it? "The PUC is dead wrong," MacLeod said. "It doesn't add up. There's still the gaping hole of the bills that are past due."

For example, Berry Petroleum Co. near Bakersfield operates three small plants that provide 100 megawatts to California's electricity system -- enough power to light 100,000 homes. The company estimates it is owed $27 million by PG&E and Edison.

Jerry Hoffman, Berry's chief executive officer, said he has had to shut down four of five generating turbines at his plants, and expects the fifth turbine to be idled by the end of this week. "We just can't cover our costs," he said. "And we're not alone. There are a lot of other QFs shutting down."

Hoffman said he was bewildered by assertions from Gov. Gray Davis' office that the state is entitled to recoup its energy expenses before anyone else. "I don't understand how the state can just step to the front of the line when all this money is owed to us," he said. "We ought to be paid first because we were generating power first."

In the case of Dynamis, the company shut down its 42-megawatt plant in February after PG&E paid only 15 cents on the dollar for more than $3 million in outstanding bills. "Dynamis simply does not have the financial resources to continue extending credit to PG&E, particularly given PG&E's refusal to make any past due payments and with no assurance of payment for any future deliveries," said Michel Gaucher, the company's owner.

Dynamis is suing for its back payments as well as suspension of its long- term contract with the utility.

An average 40 percent rate increase approved by the PUC last week will result in an additional $4.8 billion being collected from consumers each year. But not one cent will go toward paying off about $14 billion in debt racked up by PG&E and Edison because of soaring wholesale electricity prices.

That debt has prevented the utilities from making good on their obligations to QFs, and it may be months before PG&E and Edison are once again on firmer financial footing. Until then, many of the generating firms say they will be closing their doors, which will only exacerbate California's approaching summer of energy discontent.

"The PUC's decision not to pay back payments was like a 2 by 4 over the head," MacLeod said. "It told the plant owners that things are just going to get worse."

E-mail David Lazarus at dlazarus@sfchronicle.com.

©2001 San Francisco Chronicle Page D - 1

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