Cal Green Stumble

Smith’s Critical Infrastructure Assessment of the US Public Power Supply and Transmission System has gone on high alert for potential catastrophic failure due to a collapse in baseload generation.  Smith’s has hosted webinars and participated in global energy conferences in the US and around world as a subject matter expert during the past six months.

Recently, California’s public power utility officials are warning that Los Angeles could face two weeks of “brown outs” this summer due to critical shortages in the natural gas supply.

Smith’s Event Risk Alert was issued in February when the California’s Aliso Canyon underground natural gas storage facility experienced a massive leak this past winter. Smith’s warned the L.A. region would be short of the fuel due to the massive gas leak that displaced thousands of people in the nearby Porter Ranch neighborhood.

Natural gas is California’s largest energy source.  It is transmitted via a pipeline system, which is a major vulnerability as well as a critical infrastructure asset.  The Aliso Canyon facility is one of more than 400 underground gas storage facilities that use old oil fields, aquifers, and salt domes.

Marcie Edwards, general manager of the Los Angeles Department of Water and Power (LADWAP), the nation’s biggest municipal utility, has take proactive measures by signing contracts for space on electrical transmission lines to import more electricity in the event Southern California Gas Co.  is not able to get enough natural gas to keep power plants running.

But, the contracts underscore California’s dirty little secret, which allows it to access coal-based generation.  Canada, which participates in the California cap-and-trade system, has members like Quebec that are threatening to exit over the coal-based energy contracts.

Cap-And-Trade
Last month, California’s quarterly cap-and-trade auction produced only 2% of the expected  bids. Typically, the California quarterly auction produces $500 million for the state. http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm.

A quick recap: In 1996, the California High-Speed Rail Authority (CHSRA) was established to begin formal planning in preparation for a ballot measure in 1998 or 2000. The ballot measure, Proposition 1A, finally was put to a vote in 2008 when 52.7% of voters approved the issuing of $9.95 billion in bond sales for the construction of the core rail segment between San Francisco and Los Angeles/Anaheim. The law, AB 3034 included an additional $950 million, approved for improvements on local railroad systems, which will serve as feeder systems to the planned high-speed rail system.

In 2010, California received $2.35 billion of its American Recovery and Reinvestment Act funding, with $2.25 billion dedicated for California High Speed Rail. Over the next 18 months, the federal government awarded the Authority a further $4 billion in high-speed rail funding, mainly from states that rejected building rail projects.

The cap-and-trade funding was approved in 2014,  when California announced it was apportioning the state’s annual cap-and-trade funds so that 25% goes to high speed rail (under the authority of CHSRA) and 15% goes to other transportation projects by other agencies. The state’s Legislative Analyst’s Office estimated that cap-and-trade income in 2015 and 2016 could total $3.7 billion, of which $925 million would be allocated to HSR. As of mid-2015, current funds allocated for designing and constructing the system total $6.302 billion, with another $2.024 billion for connectivity and bookend transportation projects.

In the wake of the anemic auction, an enormous number of projects across California have been told not to expect to receive their cap-and-trade allocations.  What’s more, the CHSRA mandate expressly prohibits any outside subsidies for the construction or operation of the projects, which makes it virtually impossible for the State of California to fill-in any temporary disruptions in funding.

Court Case
The California Chamber of Commerce and other business groups have filed a lawsuit that contends the cap-and-trade is a multibillion-dollar tax.  And, Smith’s Regulars know that new taxes  in California require a two-thirds legislative vote. The Air Resources Board (ARB), of course, dismissed the allegation by trying to pooh-pooh the auction proceeds as ancillary to the  emission regulation and not a purposeful revenue generator. However, the fact is much of the money has been spent for purposes with little or no connection to carbon emissions. For example, $500 million of carbon cap and trade was swept into the state’s general fund, which makes the Air Resource Board’s position almost absurd.

2020 Sunset Blvd.
California State Senator Jean Fuller, the Senate’s Republican leader, asked for an opinion from the Legislature’s legal counsel about whether AB 3034 must end in 2020 unless reauthorized.  The request was made in response to Governor Brown’s executive order setting new emission standards for 2030.

The Governor interprets the AB 3034 as requiring carbon reduction beyond 2020. However, in 2010, Californians voted to approve Proposition 26, which expressly limits any such ‘end runs’  around the California Constitution requirement for a two-thirds approval on new taxes.

What should be an easily understood concept is probably going to end up in court (again).

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