Qualifying heat

On the outskirts of Woodland, a 130-foot- tall snarl of metal pipes, conveyors and catwalks rises above the surrounding farm fields. To the untrained eyes of city folks, the structure is both anonymous and mysterious, and easily overlooked as some nameless factory churning out a generic product like fertilizer or dog food.

Yet this particular sprawling contraption is a power plant, one that uses waste wood to produce fairly clean, renewable electricity.

“The environmentalists and air quality districts love us because the alternative is open burning,” said Randy Bates, who is plant manager at the Woodland Biomass electrical generating facility.

The plant buys its fuel—mostly urban tree prunings and discarded pallets, as well as rice hulls and other agricultural trimmings—from local suppliers within about a 90-mile radius of the plant. It is all waste that would otherwise be burned in a field or dumped in a landfill.

The wood is burned to make steam that turns a turbine and pumps out about 25 megawatts (MW) of electricity—enough for 25,000 homes or a city the size of Woodland itself. Yet the boiler is quiet now.

The plant is off-line for repairs that Bates said were scheduled more than six months ago. By the end of May, Woodland Biomass hopes to resume selling its electricity to Pacific Gas & Electric, power desperately needed to stave off the rolling blackouts that swept the state again last week.

Yet the future of this plant and those like it is uncertain.

Paying our bills
The Woodland site was just one of many alternative energy providers that went months without being paid by the major utilities. For Woodland Biomass, that means a shortfall of $5.5 million that PG&E still hasn’t paid.

Despite a couple of quick fixes by the administration of Governor Gray Davis, many of the generators are still on shaky financial footing, and that puts at risk some of California’s cleanest and most affordable sources of power.

At the height of the crisis, many generators simply went off-line because they refused to keep producing power for free, or, in some cases, because they had run through cash reserves needed to buy fuel. Others, like Woodland Biomass, kept producing despite the prospect of going bankrupt.

There are about 688 of these “qualifying facilities” in the state. The term comes from a 1978 federal law requiring utilities to buy from less polluting sources of power.

The majority of the QFs are cogeneration facilities, industrial plants that are powered by natural gas and reuse their waste-heat to produce electricity. Almost half the QFs make energy from lower-pollution sources like wind, solar energy, geothermal or the conversion of biomass. Together, QFs make up nearly one-quarter of the state’s electrical generating capacity, or about 10,000 MW.

From November to April, Southern California Edison paid nothing to QFs, and PG&E paid only 15 percent of its debt. Last month, the Public Utilities Commission (PUC) ordered the utilities to pay QFs from then on, but did nothing to require the payment of back-debts, more than $1 billion in all.

The loss of QF power undoubtedly contributed to rolling blackouts that hit the state in March and again in early May. That sparked an investigation by the PUC into why QFs were shutting down, with the results expected soon.

Yet the very idea of being investigated angered many in the alternative energy industry who felt it should have been the utilities, not the small generators, who fell under state scrutiny.

“How long would you keep showing up for work if your boss never gives you a paycheck?” asked Robert Judd with the California Biomass Energy Alliance.

Governor Gray Davis spokesman Steve Maviglio said that the governor is working with QFs and Edison on securing a long-term solution that addresses the back-debt issue.

Those QFs in PG&E territory will likely have to rely on bankruptcy negotiations to get their back-debt paid, but that’s still a murky proposition, contingent on what level consumer rates ultimately reach.

While PG&E now claims almost all of the QFs are back on-line, some say that many QFs are still throttling back the electricity because they are financially strapped.

“We know for a fact that many gas-fired QFs are operating at the minimum right now,” said Joe Karp, an attorney for the California Cogeneration Council. He believes PG&E was downplaying the number of QFs that were off-line, perhaps to make the QF situation seem less dire during bankruptcy negotiations.

The back-debt owed by the utilities is part of the problem. The generators say the rates they are now being paid aren’t keeping pace with the rising price of natural gas.

Much of the current mess might have been avoided if the Legislature had passed a bill in March that would have locked in long-term contracts for the QFs at 8 or 9 cents per kilowatt-hour. While that’s less than what they are making now, it at least would be guaranteed income.

Many QFs—strapped by utilities’ refusal to pay and stung by what they believe is unfair treatment at the hands of the PUC—are beginning to look at ways out of their contracts with the utilities and into the spot market.

Some, like the Southern California geothermal outfit CalEnergy, have already won court approval to sell power on the open market, setting the stage for other QFs to defect.

That would have two serious consequences for California. First, it would lead to even higher electricity prices, given the recent rates on the spot market of around 25 to 35 cents per kilowatt-hour. Second, it could leave the state in even shorter supply, as at least some QF power would be snapped up by energy hungry neighbors like Nevada and Arizona.

Karp believes the long-term ramifications could be even worse: The state’s handling of the QF crisis may send signals to other alternative energy developers and lenders that California is a risky place to do business.

Staying on-line
Just a few weeks ago, Randy Bates wasn’t sure his plant would ever go back on-line. Now, he says Woodland Biomass will stay in business as long as they keep getting paid. He even concedes that the plant could keep operating even if it never sees the $5.5 million that PG&E owes.

But if PG&E’s financial woes cause payment to stop again, chances are high that Woodland and other QFs will shut down at the first sign of trouble, rather than risk more losses.

Bates said his company is considering trying to get out of its current contract and sell power on the spot market, but that a better long-term agreement would do much more to ease his mind.

When asked what it would take to keep Woodland Biomass from defecting, Bates said that QFs probably need some sort of incentive—either in the form of better rates or tax breaks—to stay on-line.

“There ought to be some recognition of the environmental benefits here," Bates said. "There should be a niche for renewable energy."