Alternative Energy Price Cut Shrinking

SACRAMENTO — A crucial part of the recovery plan to solve California’s energy mess moved closer to resolution Thursday--but at a price higher than previously hoped and with the threat of a court battle looming on the horizon.

Efforts to cut prices charged by producers of solar, wind and other alternative energy--with the idea of shaving $4 billion a year in costs borne by the state’s big private utilities--may fall short of that goal but still generate huge savings, said state Sen. Jim Battin (R-La Quinta), who has spearheaded efforts to negotiate lower prices.

State and industry representatives have been negotiating for weeks to slash the rate paid to the alternative energy producers. The idea is to help utilities better manage their massive debts while negotiating long-term contracts to stabilize the price of power--and in the process help keep expected consumer rate hikes from otherwise growing larger.

The producers have agreed in principle to accept lower prices in return for assurances that they will be paid for future electricity deliveries to Southern California Edison and Pacific Gas & Electric. The two debt-ridden utilities owe the generators more than $900 million for recent deliveries.

California is home to nearly 700 alternative energy producers, which generate about a third of the energy bought by Edison, PG&E; and San Diego Gas & Electric. The companies include generators of solar, wind and biomass energy in addition to those that have natural gas-fired plants that employ so-called cogeneration technologies to supply heat and electricity.

An agreement in principle was reached last month to cut the amount the alternative energy producers are paid for each kilowatt-hour of electricity from 17 cents to 7.8 cents. (One kilowatt-hour is enough electricity to supply a typical home for one hour.)

But it now appears that the cost savings will be more modest with some producers, in large part because of current high prices for natural gas and existing costlier, long-term contracts between some producers and the utilities.

“We started at 17 cents, and it’s going to be closer to 8.5 to 9 cents,” Battin said of the cogenerators, which account for more than half the power supplied by the alternative energy producers. “I think this will ultimately reduce the cost of energy in the state by several billion dollars.”

Further complicating the situation, Edison petitioned a state appellate court late last week to order the Public Utilities Commission to set new, lower rates for the power producers.

Edison appears to be pushing for a proposal floated by PUC Commissioner Carl W. Wood that would cap the amount the power producers would be paid at 6.7 cents a kilowatt-hour--a rate that even Wood acknowledged could leave some of the producers unable to cover their operating expenses.

Jan Smutny-Jones, executive director of the Independent Energy Producers Assn., said he believes the court action was filed in bad faith by Edison and that the company is using it as a hammer during negotiations among the utilities, the producers and lawmakers.

“It’s a management style from the Tony Soprano school of management,” Smutny-Jones said, referring to the TV Mafioso.

An Edison spokesman said his company was still pursuing the court relief Thursday.

If adopted by the PUC, the Wood proposal would hit the gas-fired plants known as cogenerators hardest because it does not take into account the price they pay for the fuel.

“It would force us to operate at a loss,” said Jerry Bloom, an attorney for the California Cogeneration Council.

Until now, the rate charged by the alternative energy producers has been calculated monthly using a formula that seeks to reflect the expense the utilities avoid by not having to produce the power themselves. That rate, for both renewable energy producers and cogenerators, is pegged to the price of natural gas. Consequently, the recent spike in gas prices has raised the rate even for solar and wind generators that do not use the fuel.

Edison lawyers contend in court papers that the formula is flawed for a variety of reasons and that unless it is changed, the company will be forced to pay alternative energy producers at least $420 million more than required by federal law for electricity deliveries in December, January and February.

Edison’s legal action could interfere with legislation Battin expects to introduce that would no longer tie the amount paid to solar, wind and the other renewable energy producers to the price of natural gas. Battin estimated that they would be paid an average of 8 cents a kilowatt-hour.

The cogenerators would earn a higher rate, the exact amount to be determined once many of them enter into five-year contracts for natural gas purchases and away from the volatile and costly spot market.

Battin and Assemblyman Fred Keeley (D-Boulder Creek) are also seeking assurances from Gov. Gray Davis that the alternative energy producers will be paid.