March 20, 2001
California Agency Drafts Plan to Have Generators Paid
(Sacramento, California) California’s Public Utilities Commission is drafting an order that would require the state’s largest utilities to pay alternative-power generators for electricity, Governor Gray Davis said.
The PUC order would force PG&E Corp. and Edison International to pay some small generators for the power they sell if the generators agree to five- or 10-year contracts, Davis said. The proposal doesn’t address debt the generators are already owed, he said. The plan will be taken up on March 27 at the PUC’s next meeting, he said.
The agreement with the alternative-energy producers, who supply about one-quarter of the electricity used by the state’s investor-owned utilities, comes after two days of statewide rolling blackouts. More than one-third of the alternative generators refused to sell power to the utilities without payment assurances.
“The (alternative generators) need to be paid,” Davis said at an afternoon press conference in Sacramento. “If not, the lights will go out.”
The proposed agreement was welcomed by the trade group representing alternative generators, who produce wind, solar, geothermal power.
“We are very pleased with the governor’s reaction to this,” said Jan Smutny-Jones, president of the Independent Energy Producers Association. “Over last several weeks, power plants went offline because they weren’t getting paid.”
Utility Rescue
The measure comes as state officials negotiate a package to save the utilities from bankruptcy and allow them to pay back more than $13 billion in debts accrued buying power at higher prices than they could charge customers. Any past debts owed to the alternative generators will have to be addressed in these negotiations, Davis said.
Edison, which owes about $835 million to alternative-energy producers, is working with the governor’s office on a plan “to make at least partial payments on a going-forward basis” to the providers, said Tom Higgins, an Edison senior vice president.
Edison is trying to draft the plan so alternative-energy producers are paid without being seen by other debtors as getting preferential treatment from Edison.
“This is something that can be done,” Higgins said. “And it will have the effect, I hope, of stabilizing the supply of energy, but not putting (Edison) in a position of being at a heightened risk of bankruptcy proceedings.”
PG&E
A PG&E spokesman said the utility doesn’t have enough revenue to pay the alternative generators and the Department of Water Resources. The state DWR is buying electricity on behalf of PG&E’s Pacific Gas & Electric and Edison’s Southern California Edison utilities.
“Both can’t be done within the current rate structure,” PG&E spokesman John Nelson said. Current creditors are being paid on a “pro rata” basis for some past-due debts, he said.
PG&E’s Pacific Gas & Electric utility is offering to prepay alternative-energy providers about $200 million a month to help keep them in the power-generating business, the utility said in a statement.
Pacific Gas & Electric, which began negotiations with alternative-energy producers last month, also is offering to pay them for power deliveries starting next month if the DWR situation is resolved. The utility said its monthly obligations to alternative-energy generators, the California Independent System Operator and other providers exceeds $1.4 billion a month.
Several wind, solar and other alternative-power generators are threatening to force Pacific Gas & Electric and Southern California Edison into bankruptcy if they aren’t paid.
Serious Damage
Alternative generators with enough power to light
2.9 million homes stopped selling electricity to the utilities, contributing to rolling blackouts that left more than a million homes and businesses in California without electricity yesterday and today.
“We’ll only restart if we can do it profitably,” said Marty Quinn, chief operating officer of closely held Ridgewood Power Corp. of Ridgewood, New Jersey. “By not addressing past debts, California would seriously damage its reputation. Operating in many Third World countries is less risky than California.”
Ridgewood owns 14 plants in California, four of which have contracts with PG&E and Edison. Ridgewood shut down about 30 megawatts on Feb. 6 because it can’t buy natural gas to run the plants.
Ridgewood said it hasn’t been paid by PG&E since Dec. 21 and by Edison since Dec. 1, and is owed more than $5 million.
Financial Pinch
PG&E and Edison are approaching insolvency after running up more than $13 billion in debts buying power last year under the state’s 1996 deregulation law.
Davis is negotiating with PG&E and Edison, along with Sempra Energy’s San Diego Gas & Electric, on a rescue package that would give the utilities billions to pay down debts. It would also let them issue bonds backed by electricity rates. In return, the state would take over the utilities’ 32,000 miles of high-power transmission lines and other assets.
No deadline for an agreement has been set, said Joseph Fichera, chief executive of New York-based financial adviser Saber Partners LLC, which has been hired by California to negotiate with the utilities.
“Discussions with the three investor-owned utilities are proceeding at an accelerated pace,” Fichera said.
–David Ward in Sacramento (415) 519-2995 or dward@bloomberg.net, with reporting by Daniel Taub in Los Angeles, Liz Goldenberg in New York and Chris Martin in Chicago, through the San Francisco newsroom/gcb/dfr
