Green Bust Coming To Brown CA?

NOV. 24, 2010

By WAYNE LUSVARDI

A developer of transmission lines for green energy is quoted in a November 17 article in the New York Times: “When wind guys talk to each other they say, ‘Damn, what are we going to do about the price of natural gas?’”

The new report in the New York Times on how fuel markets are influencing energy prices is not reassuring of Californians’ recent vote on Proposition 23 to give renewable power a green light instead of a yellow caution light. The report indicates green power is likely to end up hitting the proverbial wind turbine fan in California when the implementation of the state’s green power law hits the energy markets in 2012. This is because U.S. domestic energy production is up for the first time since 1991 and, accordingly, dependence on foreign oil is down. The U.S. Energy Department is reporting it expects domestic supplies to grow through 2035.

Expensive green power in California is heading into an energy market of deflating fuel prices due to new methods of fuel extraction.  As the New York Times article points out, this is most evident by falling natural gas prices.

Following the Energy Crisis of 2001, California required the retrofitting of old fossil fuel power plants with cleaner natural gas turbine plants in order to comply with EPA clean air mandates. So California would be well positioned to take advantage of falling natural gas prices.

Referring to newer oil and gas slant drilling and oil recovery methods such as “fracking,” the development of synthetic oil from tar sands in Canada, and deep water drilling, Edward L. Morse, the head at commodity research at Credit Suisse, is quoted as saying: “When you add it up you get something that very closely approximates energy independence.” But California has placed its bet on green power, not conventional power, to gain energy independence that may already have arrived at a much cheaper price and with much less risk.

This runs counter to the Santa Rosa-based energy think tank The Post Carbon Institute that held a meeting in California in January that predicted an imminent “peak oil” crisis.

The Obama administration’s energy policies of pressuring Federal Energy Regulatory Commission to issue an order to regionalize (i.e., socialize) the western states’ energy grid also does not bode well for California.  California’s version of “energy independence” is not independence from Saudi Arabia but from imported power from Utah, Arizona and Texas. Regionalizing the grid would open it up to competition from nearby states for California’s huge energy market. California’s Green Power Law would have facilitated a sort of California cartel of high-priced conventional and green power by embargoing coal and hydropower, the cheapest sources of energy.

Writing in the Nov. 18 issue of the Wall Street Journal, George Gilder also is concerned that California will drag the rest of the country down with it if its experiment in green power fails. Gilder isn’t so much worried about the specter of falling natural gas prices as he is wary of renewable energy technology itself which he terms “medieval” windmills and large magnifying glasses that concentrate heat from sunlight to create electricity.

Gilder sees a few possibilities for short-circuiting California’s “Green Rush” into a falling energy market:

• A lawsuit by four state attorney generals outside of California who argue that the California Green Power Law is a violation of the U.S. Constitution’s Interstate Commerce Clause, as it establishes a blockade of electricity generated from cheap coal-fired power plants.

• The possibility of the new Republican-controlled House of Representatives pulling the plug on subsidies for Green Power in California so as not to foist any resulting financial meltdown on the rest of the country.

The prospect that green Gov. Jerry Brown would call a halt to the roll out of green power in California has about the same chance of the proverbial snowball on a hot solar panel in the Mojave Desert in August. As recently as June 2010, Brown, acting as state attorney general, filed a brief with the  FERC asking for approval of “feed-in tariffs” or premiums to pay for the high cost of green energy in California. FERC denied Brown’s request on the grounds that consumers should not have to have the high cost of green power loaded into their electricity bills and that subsidies and tax credits were better incentives.  FERC was also concerned that California would end up controlling both wholesale and retail electricity prices and thus energy companies could game the system to accomplish green power a la Enron.

However, it is not without precedent in California for a governor to overturn a ballot initiative passed by the voters. In 1994, former Gov. Gray Davis killed Prop 187 passed by 59 percent of the voters by refusing to appeal a decision by a U.S. District Court judge to the U.S. Supreme Court.

In 2001, then-Gov. Davis also called a halt to electricity “deregulation” in California by halting the implementation of Assembly Bill 1890 and replacing it with price controls. In January 2001, former head of the Federal Reserve Alan Greenspan sounded like George Gilder by stating that California’s Energy Crisis would threaten the nation’s economic health.

The California Energy Crisis of 2001 was called a “perfect storm” of energy deregulation at the same time as a drought in the Pacific Northwest curtailed hydropower, an interstate natural gas line inadvertently was shut down by Caltrans for freeway repairs, the price of natural gas spiked because there was no competition from cheap hydropower and California decided not to permit new energy plants to keep energy prices high.

Likewise, California green power will enter into a market in 2012 with many foreseeable risks:

• Falling natural gas prices.

• The uncertain outcome of a lawsuit under the Interstate Commerce Clause

• The proposed regionalization of the energy grid allowing cheap power from other states to compete with California’s high cost green power.

• Congressional rollbacks of green power tax credits and subsidies

This author once proposed to start calling California’s perpetual energy crises by the names of their governors (“Energy Storm Gray,” “Energy Storm Brown”) just as hurricanes are given names.   Will new Gov.-elect Brown act to prevent “Energy Storm Brown?” Will he wait to pin any stoppage of green power on the new Republican House to appease his green lobby?  Don’t hold your breath to prevent CO2 emissions, however, while waiting for Brown to pull the plug on a possible green energy legacy, which he has long sought.