Delta Power: Press Releases

By Mark Golden, DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Owners of small, independent power plants in southern California say they are running out of patience in their negotiations with Edison International's (EIX) Southern California Edison and they may launch another law suit over missed payments from the utility.

Owners of the smaller generators, known as "qualifying facilities," haven't received any money from Edison since early December, which means they are still owed for electricity produced in October. Many of the gas-fired qualifying facilities haven't been able to pay their gas suppliers, so they have been cut off from their gas supply and have shut down about 1,000 megawatts of generation statewide.

In addition, Edison is fighting state legislation on a new pricing deal that is supported by the state's other two investor-owned utilities, according to the generators. That bill would cut the prices qualifying facilities have been getting paid from about 17 cents a kilowatt-hour to about 8 cents/kwh (which is more than the company gets paid for its electricity), and would establish a schedule for the utilities to make up back payments.

"There's a very high level of ill will. People are not getting a sense that there's a real attempt on Edison's part to solve the problem," said Jan Smutny-Jones, president of the Independent Energy Producers Association, which represents about two-thirds of California's qualifying facilities. Smutny-Jones has said in the past that the generators are willing to slash their prices, which have been based on California's astronomical spot markets for power and natural gas, because they recognize the prices are insupportable.

But the generators feel that Edison has been unwilling to meet them half way.

"There's a school of thought lately that Edison is trying to compel involuntary bankruptcy proceedings. I don't know if I agree with that, but there is a lot they have done lately that doesn't make sense," Smutny-Jones said.

An Edison spokesman said only that the company continues to work with legislators on the bill. Edison has fought for changes to qualifying facility regulations for years because the electricity it gets from them has historically been by far its most expensive.

The California Senate Energy Committee began hearings on the legislation, sponsored by Republican Sen. Jim Battin, on Tuesday afternoon. A committee vote is expected later this week.

"Edison is aggressively fighting the bill, and they have significant resources to try to accomplish that. If the bill passes without Edison's blessing, that works for us, but it's not clear that it can pass without some reasonable consensus," said Dean Vanech, president of privately owned Delta Power Co., which has facilities in the territories served by Edison and PG&E.

As of the end of February, Edison owed $750 million to qualifying facilities, which statewide account for almost 30% of California's electric power supply. California's other troubled utility, PG&E Corp. (PCG), started defaulting on payments in early February, but PG&E has made partial payments based on what it gets paid from its customers.

"PG&E and SDG&E have been much more constructive in finding a solution," Vanech said. San Diego Gas & Electric is a subsidiary of Sempra Energy (SRE).

Vanech and other producers said that initiating an involuntary bankruptcy proceeding against Edison isn't being discussed, but that a group of them may launch a lawsuit to compel payment for past deliveries.

"They're paying hardball," said Vanech. "For example, we have been seeking to start up plants until Edison can start paying for power again, so we could sell either to the state or to third-party suppliers. Edison is completely unwilling to let us restart our plants, and technically we can't do it without their approval."

The decline in small-plant output has contributed to the state's power supply problems the past two months. On Thursday, Delta Power shut down the last of its four California gas-fired plants, which have a total capacity of 180 MW. El Paso Corp. (EPG) shut down 350-MW of generation over the weekend due to nonpayment, according to Smutny-Jones.

"We tried in good faith to stay on line, but our gas bill is 50% of our revenue," Vanech said, who added that El Paso has sued his company for nonpayment of gas bills.

CalEnergy is suing Edison over nonpayment in California court, and Caithness Energy LLC is suing Edison in a federal court in Nevada in an attempt to seize the utility's ownership of a major Nevada power plant. Berkshire Hathaway's (BRKA) MidAmerican Energy Holdings owns 50% of CalEnergy, and El Paso Energy owns the rest. The majority of Caithness is owned by FPL Group (FPL).

If the bill, SB47X, is enacted, the new pricing system would be retroactive to Feb. 1, 2001, and would run until June 30, 2006. Under the legislation, gas-fired cogeneration plants would be paid based on the cost of signing a five-year gas supply contract. The producers would negotiate five-year contracts, subject to approval by the utilities, or accept a benchmark five-year gas price still to be determined.

The other third of California's qualifying facilities run on renewable resources such as wind and solar energy. They would be paid a flat 5.37 cents/kwh, though all facilities would get paid for some of their fixed cots.

To take effect immediately as an emergency act, the bill requires approval by two-thirds of both the state Senate and Assembly. If the bill is passed, a process for quickly determining the five-year gas price would begin. The utilities would be obligated to make up all past-due payments by June 1.

-By Mark Golden, Dow Jones Newswires
201-938-4604
mark.golden@dowjones.com