Central planning of California’s green-energy market has run into a price glitch with the launching of its Energy Imbalance Market, which was meant to balance solar power and natural gas power at dusk each day.

California’s green-energy market mainly is a joint venture of California’s grid operator, Cal-ISO, and Warren Buffett’s PacifiCorp system of hydroelectric dams in the Western United States.

Cal-ISO thought it had it all figured out how to balance green solar power, available only when the sun shines, with cheap but constantly available fossil-fuel power (coal and natural gas).  Importing clean hydropower to replace gas-fired power when solar power fades out at dusk was supposed to lower electricity prices.

But California launched its first-ever regional Energy Imbalance Market on Nov. 1 only to find out there was a big glitch: Out-of-state energy generators did not submit enough bids to provide sufficient hyrdopower to California, mainly from 4:30 to 6:30 p.m. California time each day.

As CalWatchdog.com reported last week, due to this glitch, natural-gas power had to come to the rescue of the state’s energy market.  California’s grid operator explained that what caused insufficient bids were needed power-plant upgrades, metering issues and outages. But then why was PacifiCorp able to submit bids when others could not?

One explanation is that power generators were fearful of holding their power in reserve for California all day, only to find out the price to clear the market when California needed it at dusk might be less than what it cost them to produce it.

The result is right out of an Economics 101 textbook on how reduced supply increases prices: Energy Imbalance Market prices rose. Bloomberg reported the market is “at times creating abnormally high prices … because not enough supply is being bid into the system.”

To lower prices, ISO petitioned FERC to lift price cap

To respond to the problem of “unrepresentative high prices” for hydropower at sunset hours, on Nov. 13 Cal-ISO petitioned the Federal Energy Regulatory Commission for a waiver of energy-trading rules. Paradoxically, the petition requested permission to relax the $1,000-per-megawatt-hour cap on electricity price bids and accept market-clearing prices that might exceed the cap.

Despite lifting the price cap for power of $1,000 per megawatt hour, Cal-ISO touts that its Energy Imbalance Market market would save market participants $21 million to $129 million annually.

However, the American Public Power Association points out the realized cost savings from an Energy Imbalance Market would be from 0.72 to 1.36 percent, or $146 million to $294 million, of total regional power costs.  But glitches like those reported above could wipe out the tiny percentage of projected cost savings of the green Energy Imbalance Market.

Smaller states and market participants oppose Energy Imbalance Markets because the markets shift the benefits of cheap power to large market participants and higher costs to smaller participants.  If PacifiCorp dams sell power to California for two hours per day at dusk, that is power that its previous customers have to go out and buy in the market, sometimes at higher prices. Utah ends up subsidizing Los Angeles.

CA green power market does not improve emissions

Not only has California launched a Western regional green Energy Imbalance Market that is causing the hydropower it buys to be overpriced. It also keeps the air clean in Idaho, Utah, Wyoming and Oregon, but does nothing to clean the air smoggy in Los Angeles, Bakersfield, Fresno or El Centro. And air quality in Idaho, Utah, Wyoming and Oregon, where PacifiCorp operates, is not improved or worsened by selling hydropower to California.

California’s green Energy Imbalance Market is meant to avoid having to buy fossil-fuel-based natural-gas power, but so far has not eliminated the need for natural gas-fired power plants. And the price for backup natural gas power is always much higher because the number of hours it can generate sales is reduced, but its operational costs remain fixed.

So what California’s green Energy Imbalance Market produced is both higher hydroelectric spot power prices and higher backup natural-gas power prices, with negligible emissions improvements.

By Wayne Lusvardi

During the court-ordered “drought” in California from 2007 to 2010, some signs along highways in the Central Valley read:

“Food grows where water flows”

“Congress created dust bowl”

“No water=no barley=no beer”

“People are more important than fish” 

Possibly by 2020, after possible rolling power blackouts and unexplainable regional power grid failures, the next signs that will appear on California’s highways will read:

“Clean hydropower keeps all energy prices low” 

What this means is that all energy is “fungible”: all forms of energy are interchangeable in use but not in price.  Stated differently, the availability of the lowest priced source of clean energy, hydropower, holds down the price inflation of all other forms of energy (e.g., natural gas, nuclear, geothermal, wind, and solar).  Take away the lowest priced product of anything — a commodity, a manufactured good or a service — and there will be price inflation due to lack of a cheaper competitor.

Klamath River dam removals

This is precisely what California is intending to do with its pending joint plan with Oregon, the U.S. government and billionaire Warren Buffett to demolish four dams and hydropower stations. But currently there is a dry spell in Oregon and local farmers and ranchers are opposed to demolishing the dams, as reported  April 19 in the Wall Street Journal.

Of course, demolition of the dams will immensely help overpriced Green Power compete in California’s rigged energy marketplace.  Green Power is wind, solar and geothermal power.

And it will mean that, during the next energy crisis, highly unpredictable Green Power may have to be relied upon instead of hydropower from the Pacific Northwest.

But why would California be so seemingly irrational to block the cheapest and cleanest form of energy: flowing water that creates energy that can be captured and turned into electricity by driving the water wheel of a turbine engine?

Cal pension system dependent on green power monopoly

One reason hydropower is embargoed from the California energy market is that The California Public Employees System is betting that investments in overpriced Green Power will be able to bail out its ailing pension fund.  In other words, electricity ratepayers will pay for higher public pensions through their utility bills, rather than by direct taxes.  And cash-strapped cities won’t have to get voter approval under Proposition 13 for tax increases to pay for the pensions.

California’s looming power crisis

Californians have short memories.  They forget that one of the contributing factors to the state California Electricity Crisis of 2000-01 was a drought in the Pacific Northwest resulting in a lack of availability of hydropower.  Cheap hydropower was unavailable for the California energy market just as old, polluting fossil fuel power plants along the coast were being decommissioned to comply with federal clean air mandates by 2001.  California was running out of clean sky and cheap power in 2001.  But the Electricity Crisis was falsely blamed on the bogeymen of “Enron” and “deregulation.”

CalPERS’ and the State legislature’s rigging of the energy market under AB 32, the Global Warming Solutions Act of 2006, in favor of highly unreliable green power, is setting California up for its next energy crisis.  As Davis Swan of Debarel Systems, Ltd., wrote, “Rolling blackouts and/or regional grid failures will occur on a more frequent basis.  These are unavoidable consequences of continued aggressive development of renewable generation.”

Why hydropower expansion is blocked

One way to prevent the inevitable energy price inflation is to offset the loss of the hydropower from the four dams along the Klamath River with new hydropower projects.  But despite that hydropower is clean and cheap, AB 32 does not consider hydropower as “green.”  Once the principle of “fungibility” described above is understood, anyone can see why hydropower doesn’t count to meet Green Power requirements.  If solar farms, wind farms, and geothermal power plants had to compete in price with hydropower, they would go out of business.

Countering the rigged energy market against hydropower, on April 10 the U.S. House of Representatives passed the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act, H.R. 678, by a vote of 416 to 7. Even California Democrat Jim Costa, D-Fresno, joined Tom McClintock, R-Elk Grove, in co-sponsoring the bill.

Power failures

Swan explained the reason we are destined to future power system failures is,  “[W]e just have to learn things the hard way!”  He doesn’t seem to grasp that it is California’s huge pension fund gap that is pressing CalPERS and the state Legislature to rig California’s energy market against both the cheapest and cleanest form of power available, hydropower.

California radio host Warren Duffy asks: Why enforce AB 32 when studies show there is no global warming?  The explanation for why California’s environmental and energy policies are so economically and environmentally irrational can be found by “following the money” to CalPERS’ and the state legislature’s rigging of California’s energy market in favor of green investments.