Running Out of Alternatives : Future of Cogeneration, Renewable Energy Hangs on PUC Ruling

SAN DIEGO —  Magma Power--an alternative energy company here that makes a solid profit generating geothermal power in the Imperial Valley--will find out early next month what the future of its industry will be in California.

A ruling expected from the state Public Utilities Commission is expected to lay out how much of the future power capacity of the state’s investor-owned utilities--Southern California Edison, San Diego Gas & Electric Co. and Pacific Gas & Electric Co.--must be supplied from alternative-energy sources.

With technical and financial assistance from its 42% shareholder, Dow Chemical, Magma Power has become one of the strongest independent energy producers in the nation. But the plan could mean the difference between profits and oblivion for many producers of geothermal, wind and solar power.

The much anticipated PUC decision, called the Biennial Resource Plan Update, comes at a historic low point for alternative-energy producers. Those companies are smarting from the expiration of previous government subsidy programs and from the steadily dropping price of natural gas, their chief competing power source.

Absent a decision in favor of the alternative energy companies, “we’d be sunk,” says David N. Anderson, executive director of the Geothermal Resources Council, a nonprofit industry association.

If the PUC ruling adopts the recommendations issued in February by two administrative law judges, the utilities will have to buy a portion of their additional power capacity from independent producers of cogeneration and renewable power sources.

The judges call for Southern California Edison to add 735 megawatts of capacity by 1999, with 350 megawatts of that provided by renewable sources or cogeneration, an energy process in which the heat generated in manufacturing or power generation is used for secondary heating or power production.

The alternative energy producers would get a competitive boost under the plan from “environmental adders”--calculations adjusting the cost of natural gas and other fossil fuels to make alternative energy seem less expensive by comparison.

The utilities are contesting the judges’ proposed decision.

Southern California Edison says that it would be required to add too much generating capacity under the plan. Edison maintains that it can easily meet its demand for energy through conservation programs over most of the next decade.

And even if the utility does need more capacity, “we want to have resource additions to our system which are both environmentally positive and cost-effective,” Edison spokesman Lewis M. Phelps says.

For example, equivalent air pollution improvements can be had by building geothermal plants costing $240 million or by paying just $150,000 to convert internal combustion engines that run pumps at Southern California industrial sites to run on electricity, Phelps says.

PG&E; also believes that the PUC wants it to add more capacity than it needs. And SDG&E; insists that the PUC’s benchmark costs are too high, in part because the commission has picked the wrong “environmental adders,” which will mean any contracts with alternative energy companies will come at too high a cost to ratepayers.

“It would be an unlevel playing field that goes downhill against our customers to the tune of $500 million,” says Robert J. Resley, SDG&E;’s director of electric resource development.

Alternative energy producers make no bones about needing advantages to compete. Building a geothermal energy plant costs three times more than building an equivalent natural gas-burning power plant, Magma Power acknowledges.

But the extra costs are made up by the environmental advantages of geothermal, wind and solar, proponents say. The state, they add, needs to address the long-term imperative of developing alternative energy sources for the day when fossil fuels are depleted.

The expiration of earlier subsidies, the excess power capacity of most California utilities in recent years and the steadily dropping price of natural gas have combined, however, to make the current market a difficult one for alternative energy producers in general.