Green Energy Reality Looming For CA

FEB. 15, 2011


After looking at televised images of at what is happening in Egypt last week, the Netherlands, in an abrupt turn around, announced on Feb. 11 that it is reducing its 20 percent target for renewable energy, cutting wind and solar power subsidies, and approving nuclear power plants, which have been banned for the past 40 years.

In the rest of Europe there is panic as the green energy bubble is collapsing due to rising oil prices as a result of Middle East turmoil, as well as the rush to develop cheap shale oil resources using new “fracking” technologies. Investors in green energy are suddenly facing the prospect of bankruptcy as European governments are announcing that they are ending “Feed-In-Tariffs” (subsidies) for green energy projects.

On Feb. 12 the Canadian Province of Ontario acted quickly and declared that it is abandoning plans for wind energy development because “there isn’t a lick of evidence they do any good.”

What will California’s green Governor Brown do now that green energy is collapsing everywhere else? Brown and a majority of California voters shot down Proposition 23 at the ballot box about three months ago, which would have suspended the roll out of green power until more favorable economic conditions appeared.

Last June, then-Attorney General Jerry Brown’s appeal to the Obama-controlled Federal Energy Regulatory Commission (FERC) for approval to load the high cost of green power onto the backs of electricity ratepayers was denied. FERC’s reasoning for rejecting Brown’s appeal was that California was trying to control both wholesale and retail ends of the energy market, which would have ended up in “gaming” the market, a la Enron.

Just recently, Gov. Brown stacked the Public Utilities Commission with euphemistic “consumerists” with long records in union activism and lobbying.  Brown apparently is still positioning the CPUC for approving what are called “Feed-In Tariffs,” another term meant to disguise a subsidy for green power providers by hitting consumers with higher electricity rates.  In California, “consumerism” is the new double talk term for unionism and jobs programs. Even Sacramento Bee columnist Dan Walters has recently come out calling green energy another form of “voodoo economics,” as well as “another form of consumerism, not a value added activity.”

Wind energy is poised for an eventual fall as the Section 1603 up-front cash payments of 30 percent for renewable power projects expires in 2012, and the Wind Production Tax Credit expires in 2013.  Such subsidies are likely to face stiff scrutiny by a new Republican-controlled House of Representatives. Expiring subsidies, together with falling natural gas prices that petrify wind energy developers, may result in wind power hitting the proverbial brick wall sometime after California’s green power law rolls out in 2012. But green energy investment markets are surely going to react way before that. What happens if private capital for green energy dries up in California, given the risks?

The impending collapse of green power may have an impact on CalPERS investments as well. CalPERS’ external fund manager Tom Styer “invested” $5 million to defeat Prop 23. Steyer’s Farallon Investments is heavily invested for CalPERS in conventional “dirty” energy stocks (coal, oil, natural gas, nukes) that stand to make a “killing” in the stock market if competition from cheap coal and hydropower can be embargoed using California’s green power law. Unless green power is fully hedged against loss, the collapse of green energy would throw a monkey wrench into any plan to gain windfall profits from green power projects.

CalPERS’ retirement fund grew by 13.3 percent in 2009 and 12.5 percent in 2010 compared to about a 3.5 percent return for a ten-year T-Bill today.  In other words, CalPERS is investing in enterprises that are about 3.5 times more risky than a Treasury security.

CalPERS is apparently doing what Orange County did when it went bankrupt in 1994. It is rolling the dice with green energy bubble investments in the hopes of bailing out the huge deficit in the CalPERS pension system. Given the last two years performance, you might say that Tom Steyer and CalPERS are geniuses, and should replace Jerry Brown as governor.

But the problem with “bubble money” is that it is “easy come, easy go.”  Like tulip bulb prices, investments in high-risk green power and manipulation of energy markets to reap unjust profits in conventional energy stocks, are prone to sudden collapse. And the market in green power is collapsing worldwide, possibly leaving California as the last holdout.

If green power collapses, California may be facing another energy crisis of how to pay off defunct green power projects in order to clean the air just as it did in 2001. Only in 2001, it was the unpaid bonds on old polluting power plants that had to be mothballed to clean the air that led to the California energy crisis. This time if green power collapses, the high stakes gamble to replenish the CalPERS pension fund may also fail.

In 2003, the unpaid bonds on mothballed polluting power plants had to be rolled into a $42 billion mega bond to be paid off by long-term contracts for electricity.  Will this scenario repeat itself with increased electricity prices being forced on ratepayers to pay for defunct green power investments?

Gov. Brown and the California electorate sent a signal via the ballot box in November that the state was going to forge ahead with green power, no matter what.  There has been such a large investment in green power in California, with the establishment of renewable energy programs in universities and every level of government, that it is unlikely that California will do what Holland, Great Britain, most of Europe, and Canada are doing.  Environmentalists have waited for decades for the 2012 rollout of green power and they probably aren’t going to back out now.

Neither is it likely that Jerry Brown will defy the voters and his green voting block.

Where will it all end?  Will Republicans who now control the U.S. House of Representatives find a way to end California’s green power mania? If so, they will be blamed for the collapse of California’s self-inflated green power bubble.

But what will Gov. Jerry Brown do? Will he pull the plug on green power as other nations are quickly doing, or will he override the circuit breakers perhaps resulting in a green energy market crash that may affect utility ratepayers and the CalPERS pension fund?

If the 2001 Energy Crisis is a prototype of how California may manage any green power collapse now or in the future, an artificial energy crisis will be created to serve as a cover for raising electricity rates to pay for bad green power investments.

Brown likes to fashion himself as a modern day example of the wise Greek ruler Aristide “The Just.”  Perhaps a more appropriate figure would be the mythical Greek figure Procrustes, who put people on an iron bed and either stretched them or amputated them to fit the size of the bed. As the myth goes, later Theseus captured Procrustes and fitted him to his own bed.

Recently, Jerry Brown put the redevelopment and affordable housing bubbles on his Proctrustean bed and amputated them. But Brown has built himself a green energy bed, and he may now have to lay on it while the green power bubble is also punctured and deflated.  It would be a stunning defeat early in his term of office.

And the “dirty oil” companies that backed Prop 23 last November’s may end up as having been wiser than the green guru and self-styled Greek philosopher-king Jerry Brown.


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  1. John Galt
    John Galt 15 February, 2011, 19:09

    Although wholesale natural gas prices have continued to drop from 2008 high levels, CPUC approved tariffs for Southern California Edison’s electric power retail sales remain inverted (increasing unit prices as volume usage increases), even though required cost-of-service pricing shows retail rates should decline as one uses greater volumes of power. Unbelievable as it sounds, even though SoCal Edison has been able to purchase wholesale natural gas at an average market price of just $6.11/mmBTUs over the last 10 years (in Oct 2010 it had dropped to just $4.30/mmBTUs, or $0.042/kWh generated) SCE still charges residential customers about eight (8) times that cost for power purchased to run air conditioners (over $0.35 per kWh!).

    The California PUC has it upside down when dersigning electric rates for residential investor owned utility (SCE & PG&E) customers. As a result, a typical homeowner pays about 100% more for [power than retail electricity should cost.

    “Green politics” electric tariffs have been pushed for 15+ years in order to falsely “improve” economic justification and force California electric utilities to purchase the entire outputs of large solar, wind, and othe every expensive and unreliabler “green” power projects.

    Coupled with electric only cars (e.g., Volt), “greenies” believe they will soon drive down freeways using solar and wind energy purchased by them through their electric utility that is forced to buy it no matter what it costs.

    One theory is that “green thinking and green organizations” are not disimilar to other religious organization, that “green” religion should be divorced from federal, state and local government policies and budgets as being an unconstitutional union of religion and government.

    “Green religion” activities should be banned from all offical hearings; funding of all “green” research, since it stems from unproven myth and beliefs should be discontinued.

    Let’s go back to logical thinking, proven scientific facts, and professional management of our electric utilities. This should lower the retail residential electric rates by at least 50% in California.
    Electricity should be priced in declining prices as one uses higher volumes, since SCE overhead costs would be covered in the lower usage blocks and of of rates should be fabout stepped tariffs to stay extremely high

    Reply this comment
  2. ExPFC Wintergreen
    ExPFC Wintergreen 15 February, 2011, 23:10

    “Will this scenario repeat itself with increased electricity prices being forced on ratepayers to pay for defunct green power investments?”

    YES… Right now the increased costs (over $1 billion to date, before the new higher renewables mandate now being passed in the legislature)are paid for by the business, commercial and industrial customers, not the residential consumers. But when the businesses leave, there will be no choice but to increase residential rates dramatically. Coming to us in about 4 years….

    Reply this comment
  3. David from Oceanside
    David from Oceanside 16 February, 2011, 05:34

    Wayne, do you have an archived article documenting some of what you mention of the 2001 issue?

    Reply this comment
  4. norski
    norski 16 February, 2011, 07:45

    I too support ending the current feed-in tariff mentality for green power but am having difficulty reconciling the arguments that 1)windpower is petrified by FALLING GAS PRICES, and 2) the green energy bubble is collapsing in Europe due to RISING OIL PRICES.

    Reply this comment
  5. Wayne Lusvardi
    Wayne Lusvardi 16 February, 2011, 10:40

    I am the primary source for this information and did not rely on secondary sources. I served on the Energy Crisis Task Force in 2001 for the Metro Water District. I had to prepare a white paper for the board of directors on the crisis and prepare a final report.

    I subsequently wrote a series of articles at that still may be in their archives.

    In a nutshell, California was not running out of energy in 2001, it was running out of clean sky. Here’s why. In 1996, the Clinton-led EPA mandated California clean up its smog basins by 2001 or Federal highway and schools funds would be cut off. The only way to do that was shut down the old polluting power plants along the coast owned by the IOU’s – Investor Owned Utilities (SDG&E, PG&E, Edison). In the winter of 2001 you could actually clearly see the San Gabriel Mountains from Pasadena for the first time in years.

    The real problem was who was going to pay for the “stranded assets” – the unpaid bonds on the old mothballed power plants? The IOU’s, the governor, and the legislature played hot potato for a while over who would pick up the tab. Finally they agreed on trying to deregulation energy markets.

    By bringing competition into a closed market the idea was that prices would drop, say, 20%, and then could be increased 10% to pay off the bonds, still leaving a 10% decrease for ratepayers. This failed miserably for a number of reasons that were dubbed “the perfect storm” – drought in Northwest cut hydropower supplies, Cal-Trans ordered a shut down of a regional natural gas line in the middle of a cold snap in winter of 2001, Cal Energy Commission had not permitted enough new power plants, etc. The result was that without cheap hydropower to keep electricity prices low, natural gas prices spiked resulting in a crisis.

    A Democratic Party controlled legislature came into power along with Gov. Gray Davis after that. They pulled the plug on deregulation and shifted to price controls, which created the crisis most of us remember. California’s Blue legislature didn’t want to deregulate electricity and end up being held hostage to Texas natural gas providers. California put a cap on the retail price of electricity but not on the wholesale price in order to induce a pricing fever or bubble in an attempt to pay off the bonds. As always, price controls failed.

    Then there was a recall election and Arnold became governor. In 2003 he rolled $42 billion in unpaid debts on old power plants into a mega bond to be paid off by long terms energy contracts to expire in 2012. The Global Warming Solutions Act – AB 32 – is an attempt to capture the revenues from these expiring contracts for green power by 2012.

    California’s Green Power Law is an attempt to embargo cheap coal and hydropower so that the prices of green and conventional power are allowed to rise. Otherwise, green power can’t compete in the energy market. But the shift to green power won’t clean up the air in the urban smog traps of California because wind and solar farms are in deserts and mountains where the wind blows and there is no pollution. “The solution to pollution is dilution,” and vice versa. So Green Power is a mechanism to lessen California’s dependence on cheap imported energy from other states to plug the state budget deficit. It’s a way to stop the imbalance of energy trade, which sends billions of bucks to Red States.

    Bottom line: Enron did not cause the California Energy Crisis of 2001 despite all their other chicanery and accounting fraud. Even the U.S. Supreme Court ruled that Enron did not cause the Cal Energy Crisis.

    Enron originally devised the idea of Cap and Trade – now embraced by the California Air Resources Board. Enron taught government regulators how to game the system. They were “the smartest guys in the room.” Green Power is a shift from a public utility model to a highly risky and speculative game of energy arbitrage as discussed in Jose Ibanez’s book “Regulating Infrastructure: Monopoly, Contracts and Discretion” (2003). In other words, “high finance” is the new model for energy in California. This is a political-economic model, not a public utility model.

    Interestingly, in June 2010, the Obama-controlled FERC denied then Attorney General Jerry Brown’s appeal for “Feed-In-Tariff’s” for green power in California which would have shifted the high green power premiums to electricity ratepayers. FERC ruled that if Cal had the power to regulate both wholesale and retail end of the energy market they could game the system a la Enron. Obama wants to bust the proposed Cal Green Power Cartel and open up the western U.S. Energy Grid by “socializing” the costs of new transmission lines. California opposed this proposal even though it might save wind power from an eventual collapse because wind farms could supply power regionally rather than just within a state or sub-region of a state. If wind isn’t blowing in Tehachapi it might be blowing in West Texas or New Mexico or Arizona.

    So this is how we got to where we are today. Capish?

    Here are a couple of partial links. I will try and find more:
    Exponential Enrons Not Ahead – PUHCA (Pooka) Hobgoblin Exorcised
    Enron Shutdown of Power Plant Didn’t Mean Diddly Squat to California Crisis

    Reply this comment
  6. Tylerle13
    Tylerle13 16 February, 2011, 11:02

    Jerry & Mary Nichols are tuning their fiddles so they can be ready when their green utopia starts to burn.

    Reply this comment

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