Buying The Grid Gov. Davis’ Plan Puts Taxpayers on the Wrong Side of Future Technologies

Hal Plotkin, Special to SF Gate
Tuesday, March 13, 2001

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/technology/archive/2001/03/13/electric.dtl

Gov. Gray Davis’ plan to exploit the current energy crisis by having state taxpayers buy and maintain approximately 24,000 miles of obsolescence-bound electrical transmission lines will hobble California’s use of alternative, non-polluting, non-grid-dependent energy technologies such as high-performance natural gas turbines and fuel cells for another generation or more.

The grid Davis is angling to buy won’t be around forever, given the many disadvantages of centralized power-generating technologies. The only question is how long it will be before market forces and environmental concerns turn the cumbersome and costly electrical cobweb into an antique.

Large, centralized power generators often require nature-destroying dams, or the depletion of limited and sometimes toxic fossil fuel resources such as oil and strip-mined coal. The transmission lines they necessitate are another unsightly blight on the environment, and are also terribly inefficient.

If you can produce power closer to the places where it is consumed, preferably on site, you eliminate the cost of transmitting that power over distances that are often counted in hundreds if not thousands of miles. A class of new power generators known as distributed power technologies do just that.

That may explain why you don’t see power lines in any good science fiction movies. The futurists know that science is moving in directions that will make long distance power lines as obsolete as the all-too combustible in-wall gas lines that fed lights in many homes near the turn of the last century (Although it may be hard to imagine, many homes relied on dangerous natural gas-powered lights before electrical lights became more common).

But distributed power is not science fiction. Several very real companies, such as Fuel Cell Energy Inc., Plug Power Inc. and Ballard Power Systems Inc., are making rapid progress in developing distributed power technologies. One measure of the field’s promise is the fact it has already attracted substantial investments from industrial powerhouses such as General Electric, DaimlerChrysler and United Technologies Corp. These kinds of companies rarely throw big money at whimsical causes.

They know something that Davis has apparently failed to grasp. Namely, that future energy generating technologies will be very different from those now available.

Our state government should treat the producers of these new technologies fairly. Instead, it is as if Davis had proposed that taxpayers buy and operate all the buggy whip factories at the dawn of the auto age because the price of buggy whips was going up. In short, he’s putting us on the wrong side of history.

At the precise moment when environmentally-friendly, decentralized, off-grid power technologies (which are often called distributed power sources) are beginning to become available, Davis has proposed what amounts to a permanent subsidy for their competitors — the biggest, wealthiest and most polluting centralized power generators in the country.

That’s not an accident. After all, preventing real competition from alternative energy producers has been the true hallmark of California’s misguided energy policy for years. Davis’ proposal would merely set that policy in stone by burdening California’s taxpayers with the responsibility of maintaining the infrastructure for centralized power generators not for a few years, as previous laws have done, but this time into perpetuity.

Look at it this way: Buying the grid is sort of like telling Safeway that taxpayers are going to buy and maintain all of their stores but still allow the company to keep the profits from everything sold.

When it comes to energy, the real money is being made in the generating, not in the transmission.

Davis’ proposal supposedly has the advantages of protecting ratepayers by turning the grid into a public resource similar to the state highway system, which private companies can’t monopolize.

But prior to deregulation, the state’s Public Utilities Commission had made certain that utilities couldn’t gouge consumers by jacking up transmission fees unfairly. That policy worked for decades and there is no reason to think a return to it would not work now.

Disingenuously, Davis’ is also pitching his idea as a way for California taxpayers to get something tangible in return for the billions it appears we are about to spend to bail out an industry whose monthly cash flow equals the cost of building a new Bay Bridge several times over.

What the governor isn’t saying, however, is that there are some very big differences between the state playing referee to make sure the grid’s private sector owners play fair versus the state owning the grid outright.

In a referee role, the state, and by extension taxpayers, would serve as an impartial agent that makes sure consumers are charged only what is needed to maintain a distribution system that can be used by all energy producers.

As owners of the grid, however, we taxpayers would be put directly on the hook for the substantial and ever-growing costs that will be involved in its upkeep. There is no question that every penny that taxpayers spend on the grid is a penny that the consumers of centralized power sources won’t have to spend in higher electricity costs which would have otherwise been passed along to them.

But that’s also the problem.

The government should not be in the business of picking winners when it comes to energy-generating technologies. In essence, Californian taxpayers will end up paying higher taxes so that the centralized energy generators favored by our current governor can have a permanent advantage over any decentralized competitors that may come along.

One danger, however, is that many of our state’s leading environmentalists might be bought off by promises the governor is making to include the producers of selected renewable energy sources in the power supply contracts the state is seeking. Some of those producers, which include wind and to a lesser extent solar, are being promised long-term contracts with the state if they will sign off on the plan to buy the grid. Many of them appear to be ready to take the bait. They should hold out for a deal that better serves the environment.

Most people already know that renewable sources of electricity are better for the environment than their fossil-fuel-based predecessors. That’s why Davis and his allies in the Legislature often lionize the California Energy Commission for providing rebates to buyers of solar photovoltaics, windmills and fuel cells.

But what’s usually left unsaid is that the current subsidies are provided only for technologies that are hooked up to the grid. If businesses or consumers reject the grid in favor of trying to become energy self-sufficient, they don’t get a dime from that program.

There are some good reasons for at least some owners of distributed power technologies to agree to being hooked up to the grid, most notably, the ability to sell excess power back to the grid. But there is absolutely no good reason to require every owner of any current or future distributed power technology to be part of a transmission system that is destined for eventual obsolescence.

The one thing we do know is that the march of technology will probably make transmission lines a remnant of the past at some point, whether in 10 years or 100. The governor and his negotiating partners at the big utilities can forestall that eventuality by unloading transmission costs associated with centralized power-generating technologies onto taxpayers.

But when that time finally does arrive, it now appears likely the outdated grid will be owned by those same beleaguered taxpayers (namely, us), not by the companies who profited from it, and whose latest charade is to sell at inflated prices an asset that becomes less valuable with each passing day.

That explains why Southern California Edison jumped at the multi-billion dollar offer to unload its part of the grid so fast it made heads spin. Although PG&E is balking at the moment, in all likelihood the company is merely trying to drive up the price it receives still further.

The special interests that pushed through 1996’s disastrous deregulation bill did so over the objections of many experts who said at the time that the plan represented a capitulation to the most powerful economic forces in the country. They got away with it, however, because they knew the average taxpayer wouldn’t understand how they were being sold out.

It worked for them last time. The question now is whether they will get away with it again.

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