Another California Electricity Crisis Ahead?

     SACRAMENTO (CN) — An irrigation district sued the California Independent System Operator, which manages the state’s electric power grid, claiming its plan to join a regional power group will invite the disastrous price-gouging the state saw during the 2000 electricity crisis.
     The Imperial Irrigation District, which serves more than 150,000 customers in the Imperial Valley, sued the California Independent System Operator (CAISO) on June 29 in Superior Court.
     The irrigation district claims CAISO’s decision-making process on whether to integrate its grid with that of six other Western states has been riddled with secrecy and puts consumers at risk.
     The CAISO is a nonprofit with a five-person board that oversees operations of California’s electric power grid, managing 26,000 miles of power lines that carry 80 percent of the state’s electricity, delivering 260 million megawatt-hours of electricity each year.
     The irrigation district asks the court to compel CAISO to disclose records on proposals to merge California’s electric grid with power grids owned and operated by Berkshire Hathaway Energy, owned by Warren Buffett.
     Buffett’s company PacifiCorp claims that if it can integrate its power grid with CAISO’s, it could save California ratepayers millions of dollars.
     A study jointly released by PacifiCorp and CAISO in October 2015 stated that California generates excess solar power during the day and the state’s utilities could capitalize on that excess power if it integrated with other Western states.
     But the irrigation district isn’t buying it.
     “There are powerful economic interests that have reason to misconstrue benefits of an RSO [Regional System Operator],” the complaint states. “Those interests are pushing this proposal and have paid for advancing those interests in the report that was issued by CAISO but paid for by PacifiCorp.”
     The irrigation district says that if Berkshire Hathaway is allowed to merge the CAISO system into a regional one, California will lose the regulatory power it has now through the ISO. “The ISO will not maintain its current relationship with the state of California in which the governor appoints the ISO board. The proposal is to join a nonprofit corporation (CAISO) with a for-profit corporation (PacifiCorp),” the complaint states.
     Citing the electricity crisis of 2000-2001, the irrigation district says that’s a recipe for disaster.
     It wants to see the underlying assumptions and modeling that contributed to the conclusion of the joint study. The CAISO agreed to do so only if the district signed a nondisclosure agreement, the irrigation district’s attorney Maria Severson said.
     “Essentially, it’s a gag order,” Severson said in an interview. “California has strong laws that support the people’s right to participate in government and to know what is going on with their ratepayer dollars.
     “In this case you have a governor-appointed board attempting to merge with a for-profit company, and anything about an increase in renewables is just spin.”
     Steven Poncelet, a public information officer with the Truckee-Donner Public Utility District, an independent electricity provider, said he has been following the attempts to integrate the electricity grid in the Western United States for some time, and that it is “wildly complex.”
     While many Californians are wary of energy that comes from PacifiCorp’s coal-dominant energy portfolio, Poncelet said, there are just as many in Idaho, Wyoming and Utah who are leery of California’s mandates on renewable energy.
     “For them it’s a states’ rights issue,” he said. “They understand California’s zeal for regulation and environmental mandates, and they worry it will force everybody to do that.”
     Though problems dog every side of the issue, Poncelet said, a fully integrated electricity grid may very well be good for the West.
     “There are real strong arguments for why this is a smart thing to do,” he said. “It allows you to leverage resources more efficiently and balance electricity loads more efficiently.”
     However, Poncelet concedes that some things that work on paper don’t play out well in the real world.
     “Any time there is a new change around a market, there is opportunity for manipulation — for Enron,” Poncelet said.
     That’s why the irrigation district filed its lawsuit, Severson said.
     “While the [Gov. Jerry] Brown administration presented to the public the proposal to turn the CAISO into a regional energy market as a new idea, it was, in fact, a discredited notion that had been rejected when California’s experiment with deregulation ended in a colossal failure,” according to the complaint.
     The California Energy Crisis of 2000-2001 cost Californians billions of dollars, as Enron and others took advantage of the deregulated market to game the system. Due to a variety of factors, including manufactured shortages, wholesale electricity costs in California rose from $6 billion in 1999 to $27.1 billion in 2001.
     “The economic carnage from the failure was staggering,” the complaint states.
     It led, among other things, to the 2003 recall of Gov. Gray Davis, who was replaced by Arnold Schwarzenegger.
     Poncelet said there is always a chance of a repeat when you’re dealing with smart people trying to make money.
     “Warren Buffet not a dumb guy,” Poncelet said. “It’s possible Berkshire Hathaway could use its smarts and might be able to transfer a bunch of wealth out of people’s pockets.”
     That’s why public disclosure is so important, Severson said.
     “The modeling and assumption on which the claims are made that California will be able to import greater renewable sources of power from PacifiCorp need to be disclosed by CAISO so they may be understood and debated,” according to the complaint.
     The CAISO did not return a phone call seeking comment.
     Here is some background on the California electricity crisis.
     As regulator, the CAISO takes “bids” on a continuing basis from utility companies that want to sell power to customers. The price per kilowatt hour therefore varies over the course of a day. The continuing bidding is supposed to keep prices low, as the CAISO will accept the lowest bid offered at the time.
     However, when the system is near capacity — when the crisis began, the rule was within 5 percent of capacity — the rules changed, and CAISO had to accept emergency, and costly, offers, to prevent blackouts.
     In the hot summer of 2000, Enron and others realized that anyone who controlled 6 percent of the state’s power could drive the price of power sky high by claiming that for whatever reason — maintenance, unspecified problems, an alleged shortage — they had to take that 6 percent offline.
     So the price of power jumped tenfold or more when the system neared capacity. Each time the CAISO figured out what Enron et al. were doing, and tried to fix it, Enron outfoxed the state again in a matter of hours.
     For instance, the power companies claimed, among other things, that they had to send electricity to customers out of state. Then they claimed they had to buy other electricity to replace that power — at the deregulated California price.
     Since electricity cannot be traced in the power grid — an electron is an electron is an electron — Enron and others made billions of dollars by what came to be known as “kilowatt laundering” — just as good as money laundering, but harder to trace.
     The irrigation district’s argument, in essence, is that California’s weakened oversight in a regional system, pairing a nonprofit state operator with a profit-seeking corporation, invites the scenario to return.

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