By April 29, Brown went even further and issued an executive order to cut carbon dioxide emissions 40 percent by 2030 by developing more renewable power that supposedly lessens the power grid’s reliability. Could California experience another power outage as it did in 2011 across the southern part of the state, after a lineman’s error sent high voltage pulsing through lower voltage systems?

So what will it be for the summer of 2015: Brown lawns and rolling power brownouts due to less hydropower availability from drought and more renewable, but supposedly less reliable, green power? CalWatchdog.com posed the question to the operator of the grid, the California Independent System Operator (Cal-ISO), which has a stellar reputation of impartiality and technical competence.

The ISO’s forecast — 2015 Summer Loads and Resources Assessment — concludes that electricity supplies will be adequate for the summer of 2015, even if a heat wave scenario unfolds. And contrary to reports of green power unreliability, the report indicates new solar power projects coming online this summer will add more generation and will moderate peak energy events.

In an email, Cal-ISO spokesman Steven Greenlee also indicated that its new Energy Imbalancing Market would plug a gap in the early morning hours when wind power calms down and late afternoon hours when solar power fades.

According to Cal-ISO, California is likely to have too much power available, resulting in dumping of power. Greenlee said:

“If wind does not subside, then all of the resources combine to produce excess energy — at which time we are bound by grid standards to begin immediately rebalancing supply with demand. We let the market cure the situation, but as a last resort to maintain reliability, the ISO can and will curtail generation by dispatching units to zero output; we want to avoid having to this take this action.”

But what about the prospect for power brownouts mentioned by Moniz and the blackout that occurred during the Southwest Blackout of 2011?

What about brownouts?

Greenlee and Cal-ISO staff responded:

“In the intervening time since September 2011, the ISO internally and with its balancing authority neighbors have completed several reliability enhancements that have made the grid stronger and more resilient. This includes the following:

• “Enhancing the day ahead full network model that includes a representation of the entire Western Interconnection, which supports better congestion and energy balancing in the day ahead and real-time periods, explicitly modeling high voltage direct current links, and implementing a new outage management system that informs grid analysis;
• “Adding detailed network models for the Imperial Irrigation District, NV Energy, APS/Yuma, Western Area Power Administration-Lower Colorado and Sierra Nevada regions, LADWP, Sacramento Municipal Utility District, Modesto Irrigation District and Turlock Irrigation District;
• “Expanding real-time contingency analysis to account for external model changes so operators can see the impact of external systems to the ISO grid as well as increasing the frequency of the analysis to every 5 minutes from 15 minutes intervals previously used; and
• “Implementing procedures to ensure the resources with the correct characteristics are procured to recover from a contingency and be ready for the next contingency as soon as, but not longer than 30 minutes.”

Another part of Cal-ISO’s planning is what is called “Demand Response,” whereby electricity customers voluntarily curtail power usage in the event of peak prices or if grid reliability is threatened.

Small businesses and residents would be asked to curtail

However, Greenlee clarified:

“Demand response programs, we believe, vary in composition of mostly residential and small businesses, are offered and managed by the state’s three investor-owned utilities, but please note the ISO does not have any control of, review privileges, or special insight into these retail programs.”

In sum, Cal-ISO does not expect reduced hydropower availability to materially impact grid reliability for 2015. And neither does it foresee a higher risk of brownouts or blackouts, as technical fixes have been put into place to prevent another power outage such as occurred in 2011. Moreover, new solar power coming online should provide greater grid reliability for summer 2015, although California still mainly relies on natural gas and imported electricity.

The only heightened concerns for the summer of 2015 are grid congestion and wildfires caused by transmission line sag that comes with high temperatures. California utilities have not yet adopted newer transmission line technology that reduces high temperature sag and can double current line carrying capacity.

California’s Big Three energy regulating agencies just warned in a joint letter to the California Water Resources Control Board that planned water curtailments for 2014 would present a danger to grid reliability and create “substantial potential for serious public health and safety impacts.” The three agencies are the California Public Utilities Commission, the California Independent System Operator and the California Energy Commission. The latter also cautioned that steam-generation power plants fueled by natural gas need to get sufficient water this summer.

The WRCB is about to adopt emergency water curtailment regulations for this summer just in areas where agricultural water users have junior water rights. These regulations would go so far as to mandate “no potable water will be used for outdoor landscaping while this approval is in effect” (page R-3).  Household use of water will be restricted to 50 gallons per person per day in those areas.  The average water use in California is about 196 gallons per person per day.

In a May 9 report by the Cal-ISO, “2014 Summer Loads and Resources Assessments,” California’s grid operator estimated 1,150 megawatts of gas-fired steam generation is at risk of shut down due to curtailed water supplies (see Executive Summary Page 2).  That is enough power to electrify 1,150,000 homes per hour.

Northern Cal, South Orange County, San Diego County at risk 

The report was specific where the potential failure would occur:

“In considering the drought situation for the summer of 2014, the ISO is following the potential impact of thermal (steam) units being out of service due to water supply curtailments.  Among the 260 thermal power plants greater than 20 MW (megawatts), three facilities in Northern California totaling 1,150 MW have been identified to be at risk of having water supply curtailments. … Water supplies to thermal generation will likely be of a greater concern in 2015 if the current drought continues.” 

The Cal-ISO report also warns about another weak link in the power grid for 2014:

“If critical high-voltage transmission lines are out of service, due to wildfires or other conditions, deficient voltage (pressure) levels may occur under peak load conditions that could trigger localized customer outages.  Furthermore, the absence of SONGS (San Onofre Nuclear Generating Station) results in potential overloading of local transmission lines under certain contingencies. 

“Until longer-term mitigations are in place, southern Orange County and San Diego will remain susceptible to reliability concerns and will require close attention during summer operations…” (page 34).

Renewable energy to the rescue? 

The ISO also indicated there could be a double threat of loss of natural gas supplies:

“Because California has relatively large share of natural gas generation, a potential shortage of natural gas could create reliability issues on the power grid. ...

“Greater fuel diversity through integration of renewable energy sources is helping to mitigate this risk” (page 11). 

However, as retired electric engineer, and founding member of Coalition for Energy Solutions, Willem Post cautioned in an email:

“About 65 percent of the hours of the year, solar energy is minimal or zero. About 30 percent of the hours of the year, wind energy is minimal or zero.  Many of these hours overlap and occur AT RANDOM.”

Drought vs. energy

This summer California is caught on the horns of a dilemma of drought and energy. If it curtails water deliveries to agricultural users with junior water rights, as planned, this will conserve water needed for carryover into 2015. But doing so may also result in threatening the reliability of the electric grid for the summer of 2014.

California decision-makers may be facing the quandary of holding water for fish this year, for farmers next year — or releasing it this summer for steam power plants to keep alive grandmothers on respirators and dialysis machines.

Emergency water regulations to be adopted by the State Water Resources Control Board would not apply statewide, but only in those areas where agricultural users have junior water rights and have been told to curtail water use.  Some of these users have health and welfare exemptions.

By Wayne Lusvardi

A rerun is playing on TV of the inaccurate 2005 “documentary” movie, “Enron: The Smartest Guys in the Room” about Enron manipulating the California Electricity Crisis of 2001. It features Sen. Barbara Boxer, D-Calif., and former Gov. Gray Davis, D-Calif.

Back in the real world: the California electricity grid operator has accused JP Morgan, Barclays, Deutsche Bank AG, and several other banks of more recently manipulating the California electricity market.

Concurrently, as Katy Grimes reported on CalWatcdhDog.com, the California Legislature passed a hidden trailer bill as part of the 2012 state budget package that shrouds public information on its green energy trades under its Cap and Trade Program trading hub in Delaware.

Apparently, if you’re in the private sector, you have to disclose not only your energy bid, you have to disclose its intent. But if you are in the public sector, you can get away with not disclosing green energy bids at all.  Such is the double standard in California, where the private sector is criminalized before its day in court and the public sector can get away with anything it wants without the mainstream media even reporting it.

Media Focus: “Make-Whole” Payments in the Day-Ahead Energy Market

The energy-trading arm of JP Morgan is said to have cost electricity ratepayers $73 million since 2010 in self-serving energy trades.  The Federal Energy Regulatory Commission is investigating the allegations made by the California Independent System Operator that coordinates 80 percent of the electric transmission grid in California.

At issue to Cal-ISO are trades made by JP Morgan Chase, Barclays, Deutsche Bank AG, and other banks in what is called the “day-ahead” wholesale electricity market.  After the 2001 California Energy Crisis, the California electricity market was reformed to require all retail energy providers to schedule their bids one day ahead of time to prevent market manipulation.  Cal-ISO was established to serve as a coordinator of the grid and also to bring transparency to energy trading. Cal-ISO is an impartial, non-governmental grid operator.

In order to encourage competitive bidding for the provision of retail electricity, Cal-ISO reimburses bidders twice the preparation cost of their bids.  This practice is called “full cost recovery” or “bid cost recovery.”  Where bid manipulation enters the rules of the bidding game is where a bidder bids so low that they qualify for the ISO’s roster of potential electricity suppliers. Once on the roster, the bidder qualifies for double reimbursement for preparing a bid.

The same bidder would then price its electricity so high in the real time “spot market” that the ISO wouldn’t buy it.  Thus, the bidder was assured of never having to actually sell power, but would get reimbursed for submitting a bid.  This bid splitting practice is what Cal-ISO has referred to FERC for review.  Cal-ISO alleges that banks using such bidding strategies never had any intent on selling power, just skimming bidding fees.  This may have cost electricity ratepayers hundreds of millions of dollars.

Shrouded Cap and Trades

Meanwhile, the Committee on Budget and Fiscal Review of the California State Senate attached a rider to its 2012-2013 State Budget Package, Senate Bill 1018, to allow the California Air Resources Board to end run around the California Open Meeting Act on its pollution-credit energy trades.

CARB’s private Delaware Corporation, Western Climate Initiative Inc. — set up to manage air pollution emissions trading under its Cap and Trade Program –- doesn’t have to comply with California’s transparency law for its Delaware trading activities.  This action was snuck into Senate Bill 1018 on July 26 and signed into law with the state budget on July 27.  The same rider on SB 1018 also allows Cap and Trade taxes to be siphoned into designated accounts for use by the State Legislature.

On July 27, Gov. Jerry Brown used his veto power to reduce the amount of funding for State Parks and Recreation, but left CARB’s exemption from the state Open Meeting Law unchanged.

The final vote on SB 1018 in the State Senate was 58 percent in favor.  The minority Republican Party was unable to gain any compromise, amendments, or vetoes to the State Budget Package or rider bills. This was because Proposition 25 eliminated the previous two-thirds vote requirement for taxes and the state budget.

Voters originally passed Prop 25. to permit the passage of a state budget on time, to not delay funding for public schools and the needy.  The state budget was barely passed on time on the June 15 deadline by the Legislature.  Prop. 25 is now being abused to approve items having no bearing on taxes or the state budget. This is one of several reforms sought by political reformers in California in the name of greater “democracy.”

Of course, the mainstream newspaper media, such as the Los Angeles Times and San Francisco Chronicle, have focused on reporting the alleged bank abuses of energy bids. But the same newspapers have “blacked out” any coverage of the Legislature’s granting to CARB an exemption from state meeting laws for its out-of-state pollution credit-trading arm.

Why should the public’s attention be focused only on manipulated energy bids and not also on hidden legislation that would shroud green energy trades?

Is this Enron 2?  We Don’t Know Yet

Times columnist Michael Hiltzik writes that what banks have recently been doing is the same as what Enron did:

“What’s worse, it shows that we haven’t learned anything from Enron’s bogus energy trading, the disclosure of which helped destroy that firm in 2001 and land several of its executives in jail. To the extent it was designed to exploit loopholes in energy trading rules, experts say, the scheme allegedly perpetrated by JPMorgan Ventures Energy Corp. is cut from the same cloth as Enron’s infamous ‘fat boy’ swindle, which cost the state’s ratepayers an estimated $1.4 billion in 2000.” 

From what Cara Ellison writes on The Enron Blog, Enron’s “Fat Boy” trading strategy would have been similar to what JP Morgan is presently accused of.  She quotes California Treasurer Bill Lockyer:

“According to Bill Lockyer and other anti-Enron types, Fat Boy was less a trading strategy than just a plain old lie: Enron traders would tell electricity officials that it was going to use more power than it actually intended to use. That way, Enron would reap extra payments by appearing to deliver more power on a high-demand day when, in fact, it was merely using less power than promised.”

However, I believe Ellison accurately states Enron’s Fat Boy trades were numerically “minuscule, rare, and inconsequential” and a case of prosecutors piling on charges. This in no way denies that Enron executives committed accounting fraud and other crimes for which they were prosecuted and convicted.  All it indicates is that Enron did not cause the California Energy Crisis of 2001 and its energy trading practices were overblown mainly for political gain to keep the focus away from government’s complicity in the Crisis.

Katarzyna Klimasinska of the San Francisco Chronicle says price-manipulation charges against JP Morgan are not the same as for Enron, which was accused of driving up prices by shutting down power plants during the California Energy Crisis of 2001:

“The price-manipulation allegations against JPMorgan’s energy-trading unit appear to differ from charges against Enron Corp.’s power traders during the California energy crisis of 2000 and 2001, John Olson, managing partner of Pool Capital Partners LLC in Houston and former energy analyst at Merrill Lynch & Co., said. Enron was accused of driving up prices by persuading operators to shut down, he said.”

As someone who was behind the curtain of government during the 2001 Energy Crisis, I personally investigated the accusation that Enron manipulated power prices by shutting down power plants.  There’s an infamous tape from Jan. 17, 2001 of Enron traders asking an operator to shut down a 52-megawatt power plant in Las Vegas. But that was grid congestion, not lack of power. Relieving grid congestion would have lowered, not raised, electricity prices.

My experience with the California Energy Crisis of 2001 indicated that it was public utilities such as the Los Angeles Department of Water and Power, the city of Pasadena, and the Southern California Power Authority that gamed the energy trading system the most and reaped huge monetary windfalls.  Moreover, it was private power providers such as the Mirant Corporation that kept electric “spinning reserves” available and were the unheralded heroes of the crisis.

Do Regulators Have a Duty to Keep the Regulated Legal? 

What the media typically know little about the electricity and energy markets.  And is not known typically is misreported and ensationalized.  The press usually asks the wrong questions and thus gets the wrong answers.  To pre-indict the banks named in this energy trading case is premature and irresponsible.  Here are some questions that might be more helpful at this stage of the investigation based on my experience on a 2001 Energy Crisis Task Force for a large water utility, my experience as a real estate appraiser and manager and some plain old common sense.

As pointed out by online newspaper commentators, imagine that California decided to sell off surplus equipment for a few dollars and you knew you could re-sell it for $100 on eBay.  Would it be wrong for you to do so?

Or if an elderly person advertised their old, but historical car with low mileage for sale but you knew you could re-sell it for big bucks, would you buy it?

Or if you are a real estate broker and someone keeps submitting tricky high bids full of weird conditions, should you take the high bid or just take the simple lower cash bid?  If a broker recommends to his client taking the tricky high bid and later gets the seller ensnarled in a lawsuit, can the seller sue them? Most brokers I have encountered prefer to just take the most straightforward bid, despite the price.

Is the problem inherent in such situations the abuse of the buyer or the problem of an unknowledgeble seller?  Should you be able to call in the cops, the district attorney or a small claims court judge to recover what you later learned you lost on your old car?

These questions seem to be how the average person in the street or a professional real estate broker would frame such a problem.  But that is not how Cal-ISO and the mainstream newspaper media frame it.  They frame it as likely criminal or pre-concluded unethical activity.

Indeed, taking advantage of energy trading rules may be found to be an abuse.  But if so, who is to blame?  Is Cal-ISO just covering up the public perception of its own ineptness or is it cracking down as it should as a regulator?  Is it the role of regulators to “acquire” violators, just as cops may be said to acquire criminals? Is the proverbial “thin blue line” of social order to be kept first by citizens or solely by the police?  Do regulators have a fiduciary duty to keep those they regulate out of legal trouble?  Or is using the media to bring attention to such trades a way to publicly shame those who straddle the line between what is legal and what is moral?

And in the case of Legislature, now with no limits on what it can get away with, who will help the public focus on abuses of the Open Meeting Law? Certainly not the mainstream media in California.