Here are the facts: Unless we build at least four new electrical power plants in the next three to five years, Northern California again faces the prospect of rolling blackouts and skyrocketing electrical bills. These plants will cost at least $2 billion. Pacific Gas and Electric doesn’t have the cash. Neither do Calpine, Mirant, Dynegy, or the state of California. Only Wall Street has the money we need to avoid another energy crisis. But it won’t lend any to us.
Why? Because it doesn’t know if it can make a profit. Why not? Because no one knows what the California energy market will look like in the next ten years. At the close of the 2000-2001 energy crisis, state officials suspended California’s deregulatory scheme and bought $9 billion worth of overpriced, long-term power contracts, essentially buying time while they figured out how to restructure the market. Since then, Governor Schwarzenegger and the state legislature have bickered over how to keep our homes lit, and taken little action. But as long as investment bankers don’t know whether power producers can sell power directly to big industrial consumers such as Safeway, they won’t invest any capital to build power plants. The clock is ticking, Sacramento is paralyzed, and we’re heading for another round of blackouts.
Enter The Utility Reform Network (TURN), venerable San Francisco-based energy-consumer advocate and critic of deregulation. Its officials have put on the state ballot an initiative, Proposition 80, which aims to settle once and for all the question of what our energy market will look like. They’ve done what all the lawmakers in the state capitol couldn’t. And that’s why you should vote against it.
Because you don’t know shit about the California electricity market, and you never will. Quick — describe the relationship between a load-serving entity and investor-owned utilities in the import capacity market, in a hundred words or less. Can’t do it? Didn’t think so. Look, the big brains at PG&E have been running Northern California’s power grid for a century, and they couldn’t anticipate that deregulation would produce energy cartels that would drive them into bankruptcy. What makes you think you can possibly make an informed decision at the voting booth? Leaving arcane, critical decisions about our energy future to ordinary voters could produce even more of the unanticipated problems that got us into this mess in the first place.
But don’t take my word for it. “We are talking about fine policy distinctions that the typical person walking into the voting booth has no clue about,” says UC Berkeley professor and electricity überwonk Severin Borenstein. “The idea that we are putting this to a public vote is nuts. The right analogy is that the FDA, instead of doing drug approval, should just let people vote on which drugs are effective.”
Consider Proposition 80’s proposed ban on “direct access” power acquisition. Direct access lets big electricity users like Safeway negotiate wholesale deals with power-plant operators, instead of buying retail from PG&E like the rest of us. The theory was that such competition would drive down the price of power, but during the crisis officials of companies such as Enron, which had a contract to power the University of California, realized they could make a fortune bidding up prices on the short-term “spot market.” So they simply ignored their contractual obligation and redirected that juice to the statewide grid. UC officials were then forced to buy power on the retail market, which contributed to rising demand and exorbitant prices.
“When the [power suppliers] realized how much the wholesale prices could get jacked up, they just dumped those customers,” says TURN spokeswoman Mindy Spatt. “We were assured that residential consumers would be protected from the volatility that direct access causes. But when the shit hit the fan, all the firewalls came down, and we had to pay for it again.”
But here’s the thing: When Enron broke its direct-access contract, it broke the law. It wasn’t the contract that caused this to happen — it was greed, and the structural vulnerability of the short-term market. Banning direct-access contracts because a handful of power brokers refuse to honor them is like banning supermarkets to combat shoplifting.
In any case, Spatt doesn’t want to ban all bulk-purchasing contracts. See, there’s another kind of bulk-buying deal known as — jargon alert! — community choice aggregation. Cities such as Oakland and Berkeley could team up into buyers’ cartels and negotiate cheap power on behalf of all their residents and businesses. But if Enron or Dynegy are willing to break contracts with Safeway and the UC system, what’s to stop them from doing the same to buyers’ cartels? According to TURN staff attorney Matt Friedman, the cartels might simply buy their own hydroelectric dam in order to control their own power supply. Since no community aggregation contracts exist yet, we’ll just have to take that one on faith.
The other aspect that distinguishes cities from big corporations, Friedman says, is that so far, corporations have signed contracts lasting just a few years, while cities will probably enter into long-term contracts lasting a decade or more. Such contracts would stabilize the energy market and guarantee a reliable source of revenue to Wall Street bankers, the lawyer notes, while big companies would shop around every few years, thus providing a disincentive for investment in the state’s energy market. Or they might just go back to PG&E, which is legally obligated to not only sell them power, but buy power and hold it in reserve just in case Safeway ever comes back. “It makes it almost impossible for a service provider to find long-term commitments in the power markets,” Friedman says. “And that’s the key to stability, reliability, and getting new infrastructure built.”
Set aside for a moment the notion of a consumer advocate arguing against lower energy prices. Consider all the contingencies in Friedman’s argument. Maybe cities will buy their own power plant. Maybe their contracts will last ten years. Maybe Safeway will junk its Calpine deal. Even Friedman acknowledges all the variables at play here — “We don’t know 100 percent how they’ll behave,” he says of the cartels — yet he wants to restructure the market based on just this sort of irresponsible speculation.
So what if Proposition 80 passes, and three years from now, we discover that Wall Street won’t invest in new power plant construction unless we allow direct access after all? We’ll be shit outta luck; Proposition 80 requires a two-thirds majority of the state legislature to amend any provision of the initiative.
If you’ve read this far, you know far more about the electricity market than 99 percent of California voters, and you still don’t have a clue. You’re being asked to not only approve an energy policy you know nothing about, but to lock it in place forever. It’s bad enough that tinpot populists ask voters to make nuanced budget decisions like Proposition 13 at the ballot box — now they want us to be electrical engineers. Thank God this thing will never pass.