AB 813: Welcome to Coal Country

Posted July 05, 2018

By Jon Conway, Ph.D., Greenpower Senior Research Analyst

Key Points

  • If passed, AB 813 would eliminate protections against Enron-style market manipulation put in place following California’s 2001 energy crisis and abdicate control of the state’s energy market to pro-fossil fuel interests.
  • Proponents claim regionalization will bring “trickle-down”-type economic benefits by expanding the state’s energy market, dismissing the fact that California already participates in a regional energy market that stretches from Canada to Mexico, the Western Energy Imbalance Market (EIM).
  • California already has a locally controlled clean electricity solution in Community Choice Energy. Regionalization could compromise this important movement. As described in AB 813, regionalization would embody the ultimate “top-down” approach to governance, trading a successful nonprofit model for one likely to sacrifice California’s clean energy future to enhance the pocketbooks of dirty energy millionaires and billionaires.

Right now, Governor Brown and several state legislators are trying to push through a bill that would put our state’s energy markets under the control of coal-producing states and Trump administration appointees, jeopardizing the foundation of California’s climate leadership.

Proponents like Governor Brown (who, despite his desire to be seen as a climate champion, has come under fire multiple times for his shady connections to big utilities and fossil fuel interests) and multi-billionaire Warren Buffett (who owns large utilities across the west and stands to make a lot of money with a full regional market) claim that regionalization will help our state use more renewable energy, more reliably, for less money by making it easier to trade for out-of-state power.

The devil, however, is in the details — and this bill has enough to make even Faust think twice.

AB 813 would overhaul the way our state, and entire region, buys, sells, and transmits electricity by establishing California as a member of an 11-state western Regional Trade Organization (RTO) overseen by the Federal Energy Regulatory Commission (FERC). California’s existing western regional Energy Imbalance Market, on which we buy and sell electricity from Canada to Mexico, would be replaced by another regional energy market that California would not govern.

California’s energy grid is currently run by CAISO, the California Independent System Operator, a nonprofit, public benefit corporation subject to oversight by the Secretary of State with a governor-appointed, in-state Board of Governors. This representational governance structure was put in place following the 2001 energy crisis. It replaced a FERC-appointed board of out-of-state industry insiders who had just allowed companies like Enron to manipulate California’s energy market and defraud Californians out of billions of dollars. It took years of court battles for California to wrest back control from FERC, a move that established one of the key protections our state has from extreme market manipulation, giving rise to Community Choice Energy (CCE) as a new and better method to achieve our ambitious climate goals.

The sad reality is that Enron and all its unscrupulous, parasitic offspring aren’t gone; they have just been held in check by CAISO and other state regulatory bodies. If we gut CAISO, as this bill explicitly does, we are setting ourselves up for failure once again. Millions of Californians will once again be threatened with the price gouging and rolling blackouts seen the last time our grid was managed by out-of-state energy industry insiders — all with one line:

"The Energy Commission shall verify that the Independent System Operator [CAISO] has implemented a governance structure consistent with this section and, upon so verifying, shall promptly provide notice to the Secretary of State. Upon receipt of notice by the Secretary of State, Article 2 (commencing with Section 334), Section 345.5, and Sections 346 to 349, inclusive, shall become inoperative.*" AB 813, Section 359 (f)(1)

With CAISO largely stripped of power, it’s extremely important to understand how California will fare under the governance structure of the RTO. Alarmingly, AB 813 fails to provide hard details about how its new governance structure will be run. The bill states that California legislature is developing a process by which a “stakeholder-based” (read: industry insider) committee would select a slate of nominees to be approved by a “western states committee” comprising three governor-appointed representatives from each of the 11 member states (AB 813, Section 1). The sole other stated role of the western states committee is to provide guidance to the RTO board “on all matters of interest to more than one state.”

So instead of having our electric market — which has become the foundation of California’s climate leadership — controlled by a localized, representational, nonprofit organization strictly regulated to ensure it creates maximum public benefits, we could be governed by a board of industry insiders appointed by representatives from states that produce most of the coal in the US. In fact, California, Oregon, and Washington are the only states in the proposed RTO that don’t get the majority of their electricity from coal or natural gas, meaning that clean energy-friendly states will be outnumbered by 24 votes (3 votes per state x 8 dirty energy states) in appointing and giving suggestions about multi-state issues to a pre-selected slate of industry insiders.

Furthermore, some of these states have been openly hostile toward other states’ clean energy goals. Wyoming and Montana, which produce 45 percent of all coal mined in the US, issued legal threats in February of this year to Washington state over the state’s proposed carbon tax on the grounds that it violates FERC authority and violates the Interstate Commerce Clause. In the same month, Utah lawmakers approved a proposal that would set aside $2 million to sue California over rules that make coal-fired power more expensive. It is difficult to imagine that they would suddenly become clean energy allies as soon as they can outvote us.

This is obviously bad news for California’s clean energy goals, and it just gets worse. Any rules California makes before joining the RTO can later be thrown out by the RTO board and FERC. Take, for example, AB 813’s recent amendment attempting to prevent the collapse of our renewable portfolio standard (RPS) criteria. In a recent, directly analogous, court case, the Supreme Court upheld a FERC decision to eliminate Maryland’s requirement that its utilities must contract with in-state power plants several years after it joined a similar RTO.

I want to emphasize this point: Maryland entered into a RTO with the explicit condition that they could prioritize in-state generation — and that condition was overruled by FERC. The federal government and the Supreme Court have shown they believe states in a RTO should not have the ability to prioritize their own energy market development, and the executive branch wants to force everyone to buy coal and nuclear.

Why in the world would California want this?

Courtesy of Loretta Lynch/SanDiego350.org.

When asked what the primary benefit of regionalization was in a recent Clean Power Exchange webinar, former FERC Commissioner Jon Wellinghoff unequivocally stated that the number one reason for regionalization was economic benefit. When discussing job creation, however, he admitted that most of the new skilled, high-paying renewable sector jobs created by regionalization would not be in California, but rather in other RTO member states. 

He went on to clarify that California could see some new jobs, but as a result of cheaper energy prices for commercial customers resulting in them hiring more employees.

“More income available equals more jobs,” he said, apparently ignoring the direct loss of tens of thousands of local clean energy jobs predicted by CAISO.

Wellinghoff, FERC Commissioner appointed by both George W. Bush and Obama, told an audience of clean energy experts that California should handicap its growing renewable industry and abdicate control over its energy future to a group of hostile coal states and a Trump appointee-dominated FERCbecause trickle-down economics will save us all.

There is one big flaw in this argument: Trickle-down economics. Does. Not. Work.

I can see why any 1%-ers who are behind this bill would be attracted to the idea that giving themselves even more money will solve the country’s problems, but it didn’t work when Reagan inflicted it upon the country back in the ‘80s, it didn’t work when Trump inflicted his recent corporate tax cuts on the nation, and it certainly won’t work if Governor Brown inflicts it on California’s energy markets. But it would probably work just fine for Mr. Buffett!

California, however, deserves better. The rise of Community Choice Energy programs across the state shows that we want the exact opposite: more local control, more local benefits, and more accountability. And yet AB 813 would give FERC the express authority to kick out any CCE from the RTO if it failed to meet as-yet-unspecified federal regulations that California will have little to no say in creating.

The reason California has become a climate leader for the country, and the world, is because its people are able to make their voices heard in determining the state’s energy markets. If AB 813 becomes law, California will abdicate its voice to parties that have shown strong preferences to prioritize fossil fuel generation.

Will regionalization be the key to unlocking California’s renewable energy future? Could giving our state’s energy market governance power away to a group of coal states overseen by a Trump-controlled, pro-fossil fuel agency really make us climate leaders?

Not likely. Giving the henhouse keys to the foxes doesn’t mean they’ll suddenly go vegan.

Watch our video and urge your representatives to vote NO on AB 813

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*Article 2: Establishes CAISO as the primary regulating agency for California’s energy market operations, governed by a five-member board of directors appointed by the Governor and confirmed by the Senate. It also establishes a five-member Oversight Board, appointed by elected officials, to govern the Power Exchange and serve as the appeal board for CAISO. It prohibits persons with conflicts of interest from serving on the Oversight Board, and instructs FERC to give “due respect” to California’s jurisdiction over CAISO and the Power Exchange.

Section 345.5: Sets operational standards for CAISO as a nonprofit, public benefit corporation to ensure the reliability of electric service and the health and safety of the public.

Section 346: Requires CAISO to participate in all relevant FERC proceedings and gives CAISO the authority to regulate California’s energy market, ensuring that it sets standards as good as or better than the current regional market standards. 

Section 347: Allows CAISO to form technical advisory committees.

Section 348: Requires CAISO to adopt and ensure compliance with standards for transmission facilities and emergency situations, and to report to the Oversight Board regarding these standards.

Section 349: Gives CAISO the authority to perform reviews of transmission facility operators and owners following power outages affecting at least 10% of that entity’s customers, and to impose sanctions subject to FERC approval.

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