In some embarrassing news for Governor Arnold Schwarzenegger, who styles himself a champion of renewable energy, Texas has just passed California as the number one state in the country for wind power. Meanwhile, Schwarzenegger’s trailing Democratic challenger, Treasurer Phil Angelides, sought to capitalize on current energy concern by presenting an energy action plan, with details to be revealed after he is sworn into office.
“Within 100 days of taking office,” declared Angelides in his prepared statement, “I will unveil an action plan that will ensure the state has sufficient power with a 15 percent reserve – along with needed improvements to the transmission grid — to provide adequate power to protect our families, our economy, and our businesses.”
This promise of an energy plan within 100 days of being sworn in as governor was the first part of Angelides’ three-part energy plan announced yesterday. In the second part, he said would revive the late California Power Authority. Finally, he pledged to appoint an energy czar.
The old state power authority, which I strongly supported in a series of columns and articles early in this decade, was an Angelides-sponsored agency whose creation was engineered by the treasurer and his ally, then Senate President Pro Tem John Burton. It was approved by then Governor Gray Davis, who allowed his chief energy advisor during the 2001 electric power crisis, veteran public utility executive David Freeman, to become power authority chairman. But by the time Schwarzenegger abolished it after taking office, few cared about it.
The agency had a broadscale charge, with the potential ability to take over power plants from manipulating merchant power generators and to use its multi-billion dollar bonding capability to build “peaker” power plants (which would be quite useful in the current heat storm) and create vast new investments in renewable energy and energy efficiency projects.
But the state power authority, on whose board Angelides served, proved to be a bust. Virtually nothing was accomplished. At one memorable board meeting, attended by the treasurer, scores of power generators came to pitch projects, most of them for renewable power. Despite promises and high hopes, they ended up with nothing. In addition, the agency’s forecast of the state’s future power needs missed what is now occurring.
Angelides himself did not attend most of the state power authority’s board meetings. It was a great disappointment.
“Arnold Schwarzenegger,” the Democratic candidate declared yesterday, “promised us in 2004, ‘Trust me. Everything will be under control. Your lights will stay on.’ And for three years, Arnold Schwarzenegger has been singing the music of California’s deregulation scheme, thwarting efforts to create an environment that attracts clean power to California,” said Angelides. “It’s time to send a strong signal to the market that the failed deregulation experiment of Enron, George Bush, and the energy power pirates is over once and for all.”
“The Governor’s energy policy can be summed up in four words: Pray for Mild Weather,” said Angelides. “Governor Schwarzenegger has put California’s energy in the hands of the power barons who have been fined more than $5.3 billion for market manipulation. The result is a crazy quilt energy policy that is not working for California.”
While there is much to fault Schwarzenegger on with regard to energy, the reality is that the core of his approach on electric power is not a widespread deregulation scheme but to run the system primarily through the state’s Public Utilities Commission, following the outlines of a bill by former Assemblyman Rod Wright (D-Los Angeles) signed into law by former Governor Gray Davis. The core of the approach is to promote long-term power contracts regulated and approved by the PUC.
This is the complete antithesis of the wide-open daily “spot” market which was so successfully gamed in the past by various companies including, as Angelides mentioned, the late Enron Corp., which was a political contributor to Angelides.
Schwarzenegger does support creating a “direct access” market for large businesses seeking better deals with power generators, but that hasn’t happened.
While the reality of the energy situation in California is not as Angelides portrays it, many critics have legitimate concerns with the course of Schwarzenegger’s energy policy. There has been tremendous criticism of the governor’s chief energy advisor, Joe Desmond, for his preoccupation with the so-called Frontier Line project. This is a speculative and very expensive venture to provide more transmission capability around the West. It is also a way to more easily bring coal-fired power from the Mountain West to market.
Desmond is an excellent briefer with a strong grasp of the issues, as he has demonstrated to the state’s press corps this week. But many fault him for putting such focus on the Frontier Line for the future at the expense of a greater focus on pushing through conventional power plants and renewable energy projects in the near term. Indeed, this was a principal reason why he was not confirmed by the Senate as chairman of the California Energy Commission. Desmond continues in government as undersecretary of the resources agency.
Schwarzenegger has repeatedly called for more renewable power for California, and has accelerated the state’s renewable portfolio standard — under which utilities are required to get 20 percent of their electric power from renewable sources — from 2017 to 2010. But, although he succeeded in getting his Million Solar Roofs program enacted earlier this year, the acceleration in rhetoric has not yet been matched by an acceleration in production.
Indeed, Texas has now passed California as the number one state in the country for the production of electric power by wind turbines.
California had long been the national leader in wind power — and had been the world leader — since the inception of its programs by former Governor Jerry Brown over a quarter-century ago.
The American Wind Energy Association announced yesterday that Texas now has 2,370 megawatts of capacity. California has 2,323 megawatts of wind power capacity.
Renewable power advocate V. John White, an Angelides supporter who nonetheless has been admiring of Schwarzenegger on a number of energy and environmental fronts, says that the “megawords have not been matched by megawatts.”
However, as he and others note, in addition to a lack of push from the state, wind projects in California have been of late hampered by regulation, something which has not been as much of a factor in Texas. In particular, there has been increased concern about the fate of birds drawn to the massive wind turbines.
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Nice piece in the Merc today on the power crisis, which is what Phil Angelides has been saying for the past two weeks. Note the failures of this administration and Desmond’s quote, including the Desmond quote about not focusing on building power. A couple quick excerpts:
“California has approved 18 power plants to be built in the next few years, but only two are under construction and will cover only half of the expected growth in peak energy demand state officials are predicting by 2008.
Five years after the state’s power crisis, anxiety over insufficient supply stems from a more cautious power market in which generators want to be sure they can sell the energy they produce before spending billions on new plants. Energy experts warned that the record-setting heat wave alone should not spur a power plant boom.
The two plants being built will add 960 megawatts to the state grid when they come online in the next two years — enough to power 720,000 homes. That falls short of the California Independent System Operator’s prediction that 1,787 more megawatts will be needed during hot summer afternoons in 2008.
An additional 10 plants are on hold. The approvals of three plants have expired and three plants have been canceled.
“It’s going to be challenging through 2009,” said Stephanie McCorkle, a spokeswoman for the state’s independent grid operator. “We would not have been able to keep the lights on had we not seen the positive investment in the infrastructure that we’ve seen in recent years.”
Since the 2000-01 power crisis, California has built 36 new power plants producing almost 13,000 megawatts of electricity. With power lost from older power plants that have been retired, including two big plants this year, only about 6,700 net megawatts of energy have been added to the power grid.
Still, energy experts warned that rushing out to build plants based on record-breaking weather events isn’t necessarily a wise move.
“This is clearly a historic weather pattern not seen in 57 years, so we plan appropriately,” said Joe Desmond, undersecretary of energy affairs for the California Resources Agency. “We certainly don’t want assets sitting idle for 57 years.”
Even as the fear of blackouts looms, Erik Saltmarsh, executive director of the California Electricity Oversight Board, said today’s energy situation is nothing like the power crisis of 2000-01.
When deregulation occurred in the late 1990s, it infused California’s energy market with competition. Utilities no longer controlled when and where new power plants would be built and new companies, such as Calpine, jumped into the game.
The new market meant that short-term contracts became more common and large chunks of energy were bought in a “spot market,” increasing prices and volatility.
The system left the grid operator wondering each day where up to 30 percent of the state’s power would come from.
Today — rather than an uncertain market testing energy supply — officials are dealing with energy producers careful to build a plant only when a long-term energy contract is secured, Saltmarsh said. That may mean less power supply in the short term, but more stability in the long term, he said.
That economic shift has also caused a tidal shift in the way energy contracts are constructed and reviewed by state regulators, which slows the process for plants to be built, he said.
And that’s the rub.
“It is my personal belief that, in general, California ought to be adding close to 2,000 megawatts a year to keep up with growth and retirements,” he said.
The Emperor Angelides has no clothes. He announces that his agenda is that he will have an agenda after we elect him governor. His only plan is to “revive” his state power authority, an abject failure when he had his first crack at energy policy in California.
Steve, odd as it may seem, the purpose of the Comments section is to post comments on what I write.
It is not to reproduce campaign press statements — which in any event I just quoted very liberally from — nor is it to spam the site with a long copyright violating reproduction of an article from another newspaper.
Your comments on this column are welcome.
Bill:
Thanks for the informative background and analysis. I’ve seen a couple of stories recently that one piece – stress piece – of the problem that there’s so much building of new homes going on, and many of those homes are in the Central Valley, where it’s obviously hot in the summer, and, in addition, many of the new homes are large and intensive consumers of power. So it seems that it’s not just about adding capacity to produce power, it’s also that we’re constructing facilities – homes – which use large amounts of power.
We are using more juice and moving to hotter areas because they are more affordable.
I’ll do the honor of spinning for both sides:B-):
in defense of schwarzenegger:
According to the American Wind Energy Association, Texas has the potential to generate 1,190 billion kilowatts per hour and California only has the potential to generate 59 billion kilowatts per hour. It was just inevitable that Texas pass California – it’s just a more winding state.
opposed to schwarzenegger:
California has the potential to generate 59 billion kilowatts per hour yet only generates 2,323 megawatts of power. California is no where near its potential and part of the problem is that Schwarzenegger stands in the way of regulatory reform that will put renewable energy plants on a fast track. The least we can do is take advantage of all the blow hard speeches the governor gives.
darn it! that is windy state and winding state.
Is there anyway to harness the heat generated by the governor’s just-discovered “intensity of prejudice” on immigration?
Think about it, Stephen A. Douglas, back in the day of the Missouri Compromise, claimed he could travel from Boston to Chicago by the light produced by his burning effigies.
There has got be a way, maybe a Matrix, to plug into this potential source.
General, what regulatory reform is that?
While wind power advocates trumpet the potential of their technology, you will hear little about their actual role in meeting the record super peak demand during this hot weather pattern. It would be nice to get ISO statistics showing how much of the 2323 MW of wind capacity was actually used. The same high pressure system that builds heat for days on end also blocks the wind. If wind turbines did not contribute to the grid when we needed power the most, it is hard to justify much of a subsidy for it.
You know, when the Santa Ana winds blow it is hot and wind power can be very useful. This is a different sort of weather pattern.
I am in general agreement with Bill on the role of a state power authority. An electricity system functions in an integrated, interdependent manner. At the macro level its design and operation properly belongs in the hands of engineers and a regulating agency that have the tools to create the proper balance between cost and reliability. It’s also important to have fair agreement between all the various actors in the system on what obligations and costs they will bear in its operation.
The Mercury News article states the obvious; building a plant without knowing if you can sell the power is problematic. Following the rule that return and risk need to be inversely proportionate, a system where the state sited plants and took bids for building them and contracted power production, with performance clauses, makes sense. The great variable, the fuel cost component, has to figured in and can be hedged by various parties. But this requires actually making commitment to decisions that may or may not look good in the future and will be subject to criticism. But planning and implementing the best prediction we can make of a system that will meet our needs is still necessary.
The wind industry is demonstration of contracted power development. They don’t build them till all the ducks are in a row including the all important tax credits. But I still wonder if the renewable energy push is being properly considered and accounted for in a rational way, especially solar which is the most expensive power there is. And I wonder if it will lead to what I hope is erroneous reporting in the SF Chronicle today that said “A kilowatt hour current costs about 12 cents, but is expected to rise to about 50 cents in the near future. “
The reforms his administration hasn’t proposed of course!
Jeff, I think that Chronicle report today was, er, unedited.
General Cortina, but of course.
Regarding the comment about the wind not always blowing on peak, demand must be met at all times, not just during super peaks. Every kwh generated avoids the need for about 8 cubic feet of natural gas and also avoids the global warming and pollution that burning gas causes. Gas fired peakers use even more gas.
There is more to keeping the lights on that simply having enough capacity to meet peak loads.
Gov. Schwarzenegger should stop talking up alternative energy and start working up alternative energy. We expect nothing now from the buffoon Democratic candidate Mr. Angelides.
Should we start a clock to count the time since the exact Angelides energy plan started without details?
To match the clock to count the time since the exact Angelides tax plan started without details?
The answer on the latter, incidentally, is now 16 weeks!
I know, I am so unfair.
I suppose it’s fair to state that nothing was accomplished by the Power Authority as it pertained to its legislative mandate: To step in and build power plants when no one else could i.e. when the marketplace failed. The problem at the time, however, was that the Power Authority could not finance new power plants when no one else could either because it needed the same fundamental thing that merchant generators needed – a power contract.
Without a guaranteed revenue stream/power purchasing contract, rating agencies scoffed at anyone with the pipe dream of building a power plant that would serve California’s energy consumers, including a state backed power authority. So what if the Authority could issue revenue bonds, they still needed to prove to Wall Street that they had the wherewithal to finance, construct and produce megawatts for someone who would actually pay for it.
Once the window of opportunity closed, which was the day that DWR stopped purchasing power on the behalf of the state (or entering into new contracts), the Power Authority became just like every other merchant generator – beholden to a severely divided PUC and tediously lengthy PUC procurement process. (Talk about an overly litigious process!) The IOUs certainly were not jumping all over themselves to sign new power contracts, since the state was rushing to divvy up the “expensive” ones negotiated during the energy crisis. Nor was the PUC going to force new contracts upon the IOUs who were already asking for rate increases to absorb the costs of those DWR contracts.
I say a window of opportunity was lost because the Power Authority was meant to combine it’s newly created power with DWR’s emergency responsibilities to sign contracts, thereby allowing the power authority to finance new power plants both renewable and natural gas fired. Once DWR’s responsibilities sunsetted, so should have the Power Authority’s.
Lastly, the most critical and overlooked CPA accomplishment, due to its very creation and an unrelenting chairman, was it forced the three energy agencies (CEC, CPUC and ISO) to agree to talk to each other (Funny how all the boxes don’t seem to like to acknowledge each other, especially when their turfs are hefty with 500 plus staff.). Through this forced communication, the agencies developed and adopted the state’s first Energy Action Plan. The plan not only set energy reserve targets agreed upon by all, but also a loading order for procurement of new resources.
Sorry for the long post. I hate long posts.
Yeah, so do I …
>I hate long posts.
The problem with your very long explanation is that it still remains incomplete.
It is inaccurate to say that its mandate was only to step in where the marketplace had failed.
It does not explain why the Power Authority failed to finance any projects nor does it explain why the agency’s forecasts were so far off with regard to the current heat wave crisis.
What else is new?
LC is 100% correct. The Power Authority faced the same market conditions as the now bankrupt or departing independent generators. No responsible capitalist would finance projects without long-term contracts from solvent counterparties for either the Power Authority or independent generators. With direct access suspended, the investor owned utilities were the only buyers, but they were constrained by the balkly PUC process. The Power Authority could have bought the partially completed Mountain View plant, but Edison was given the sweatheart contract instead.
Politically, the Power Authority was a gift to public power cowboy David Freeman and an attempt to leverage the independent generators during the energy crisis. When the horribly misguided attempt to buy the grid (Senator Burton’s hot dog) failed, it was just a matter of time before the vestigial agency was excized, only to be viewed by student of government studying bad decisions.
The lengthy post may have caused you to miss my answer in the first paragraph as to why the CPA could not finance new power plant projects.
NO CONTRACT = NO FINANCING
The CPA like the rest of the private power plant developers at the time could not secure financing without a long-term power contract. To give you an example, at the end of 2003, the Energy Commission had a list of approx. 13 power plants projects that had gone through its permitting and approval process, but construction had not commenced or was halted because the developer could not prove to financiers and rating agencies that someone would buy the power from that project, without having a long term energy contract in hand.
To truly belabor the point, the CPA was given the authority to issue Revenue bonds NOT General Obligation bonds. Revenue bonds must be backed by a guaranteed revenue stream. A guaranteed revenue stream would be in the form of a long term power purchasing contract, which again simply did not exist at the time. As you’ll recall, after suspension of DA, the IOUs became the only game in town, and the MUNIs certainly didn’t need any help building and securing financing for power projects (most of their cities had better credit ratings than the State). However, the IOUs were in no shape to enter into new power contracts (2 of 3 filed for bankruptcy), while at the same time they were asking the PUC to grant rate increases to absorb the DWR power contracts that were allocated to them. Also, the PUC was not going to approve new power contracts until it went through a long drawn out procurement proceeding to figure out if they in fact needed to approve any new contracts.
As for the forecasting which I didn’t address because the CPA was not in the business of forecasting (that would have been a duplication of roles/responsibilities and viewed as sacrilegious because no one wanted the CPA to do anything that the other energy agencies were already doing.). The only white papers I recall the CPA issuing had to do with setting a 15% reserve target, which was later adopted in the Energy Action Plan and they recommended that peakers be built because the market wasn’t going to step in to build an expensive project that had a low rate of return. Also, the CPA believed adding more traditional supplies was not of urgency then (nor is it now – PGE recently said the rolling blackouts was NOT due to the lack of supply) but rather a stressed grid. The CPA strongly felt that siting/building generation locally could ease a congested transmission system. But, you are privy to more information and access, so maybe the CPA has issued a forecast or two recently.
What about law enforcement. Crime is becoming a big issue again and the Dems are out to lunch. Gray Davis had it going on with law enforcement. Angelides looks like a liberal wonk.
LC, I have limited time for this sort of thing, as the number of people making excuses on everything I write about is seemingly limitless.
However, I can assure you that you are totally wrong about your assertion that the Power Authority made no forecasts about the future.
Of course, they did, how else do you suppose they did any planning whatsoever for what they were going to do? Notwithstanding the fact that they never did it.
Neither Dave Freeman, who is now Angelides’ chief energy advisor in his campaign, nor Angelides saw anything like what is happening now.
9/7/2006 4:21:45 PM
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