A disagreement involving two federal agencies could force a Utah-based electricity producer into bankruptcy.

Sandy-based Deseret Generation & Transmission could be forced to file for Chapter 11 protection by the end of the week, says General Manager Merrill Millett.Deseret is hoping the Rural Electrification Administration and the National Rural Utilities Cooperative Finance Corp. can resolve their dispute in time to salvage an agreement Deseret has negotiated with its creditors to avoid bankruptcy.

Larry Casey, a Rural Electrification Administration spokesman, said discussions between Deseret and his agency are continuing, but he refused comment on specific issues. He also refused to speculate on whether the issue could be resolved this week.

Deseret has been flirting with bankruptcy the past two years. The latest of three standstill agreements between the Rural Electrification Administration and other Deseret creditors expired Sept. 30. Millett said the proposed agreement is intended to replace the standstill arrangement.

Deseret's problems stem from its inability to find firm contracts for about half the power being generated at its 400 megawatt Bonanza Plant near Vernal. The $1.2 billion plant was constructed in the early 1980s to meet the anticipated needs of the oil-shale industry and MX missile activities. While Deseret has managed to sell much of its surplus on the spot market, that revenue has not been sufficient to "pay the bills," Millett said.

Millett said the restructuring agreement with its creditors needs only Rural Electrification Administration approval to put it into effect.

Deseret has been making reduced payments to its creditors under the standstill agreements. That practice would continue under the new agreement.

Deseret is close to finalizing a contract with Los Angeles that would give it sufficient firm power sales to meet its debt repayment obligation beginning in 1994, Millett said. The contract depends on a joint venture to build a 500-kilovolt transmission line from the Intermountain Power Project near Delta to Las Vegas. The project should be completed by mid-1994.

"The restructuring would allow us to work with that time frame," Millett said.

Millett said the proposed agreement could become part of a bankruptcy solution. He said Deseret would look at all other alternatives first, however.

Most of Deseret's sales are to municipal utilities or rural cooperatives.

"We have had discussions with a number of (private) utilities interested in obtaining Deseret's assets," Millett said. Included in that group is PacifiCorp, the parent company of Utah Power & Light Co. All discussions have been preliminary thus far.

Ironically, Deseret's Bonanza Plant was recently recognized by environmental groups as one of the cleanest in the nation.

"I don't know of another power plant that is as clean," Millett said. "We can produce power and provide a clean environment, but we still have to sell it in a market where there is a demand and Utah isn't that market right now."