Subsidizing power

Despite deregulation, Californians continue to pay for the cost of approving power plants

Taxpayers pay for the often costly approval of new power plants, like this one in Sutter County that came on-line last year.

Taxpayers pay for the often costly approval of new power plants, like this one in Sutter County that came on-line last year.

Photo by Larry Dalton

Despite self-inflicted financial electrocution, Enron continues to advertise it is open for business, at least in Roseville.

The bankrupt former energy giant continues to pursue a license from the California Energy Commission (CEC) for its proposed hefty power plant in Roseville.

Although the shrinking company is way behind schedule on submitting required information about the facility’s impacts on the environment and the aging electrical transmission lines it would hook up to, the 900-megawatt natural gas-fueled project is still in the CEC’s active siting queue.

The CEC staff will keep its review alive until the crooked E withdraws its application or the commissioners vote to suspend it because financial considerations are not a normal part of staff’s analysis, said CEC project manager Lance Shaw.

The rub is not that the project may not make it to the siting finishing line—as certification bids are often pulled before completion—but that the cost of the CEC’s work is not covered by Enron. It is paid for with ratepayer and taxpayer dollars.

The cost to date for the CEC’s review of the Roseville project was not available, but the average cost for the first phase of licensing, which includes holding public workshops and reviewing applications for completeness, is $100,000.

Of more significance is that Enron is not the only energy company to get a handout. In fact, all power plant project certifications—from start to finish—are subsidized.

The commission’s per project license costs range from around $800,000 to $1.2 million, and that number does not include the cost of defending a certification decision in court, according to the CEC’s David Maul.

So, why are California ratepayers and taxpayers footing part of the bill for profit-driven generators in a deregulated environment? “That is a good question,” said CEC Commissioner Robert Laurie.

It is also one being posed by the Legislative Analyst’s Office (LAO), which is grappling with how to cut the multibillion-dollar state budget deficit.

Although the LAO recently raised this issue, having ratepayers pay for the CEC’s licensing review is a carry-over from the pre-deregulation days when private and public utilities built power plants principally to supply their customers. Since then, California’s energy market has been filling up with private merchant plants built by in- and out-of-state companies, including unregulated subsidiaries of the investor-owned utilities, that sell their juice to the highest bidder anywhere they want.

“It is a hustle,” said Doug Heller with the Foundation for Taxpayer and Consumer Rights.

Although ratepayers subsidizing generators’ licensing costs is nothing new, having state taxpayers chip in is. After the state’s deregulation dream turned into a nightmare, the state went on a plant building frenzy and project applications flooded into the CEC. As a result, the surcharge in ratepayer bills over the last two years could not cover the soaring siting costs, so the state General Fund was tapped.

To put things in perspective, only 10 applications to build new power plants were filed between 1990 and 2000, compared to 36 applications submitted to the CEC in 2001. This year, 15 applications are expected to be filed by the end of June. To handle the unprecedented workload, the CEC has hired private consultants, who cost more than two times that of a commission staffer.

The CEC spent about $16.5 million on siting last year and will likely expend the same amount this year because of project overlap, with the taxpayer-funded General Fund covering about $5.5 million this year.

Interestingly enough, generators are not necessarily opposed to covering the CEC certification costs, as long as the regulations are kept to a minimum. “If generators are responsible for the [CEC’s] costs we need assurances there will be cost containment,” said Steven Kelly, policy director with the Independent Energy Producers.

But deciding who should cover the CEC costs of licensing power projects is more difficult than it appears and involves significant policy questions.

Laurie and others have serious reservations about moving to a fee-for-service siting program. Laurie said the decision depends on whether it is in the public interest to have power plant developers pay the full fee, saying it is a matter of public perception.

The commissioner, a former land use attorney, noted that developers in many areas pay all of the local agencies’ cost of assessing environmental and economic impacts of a subdivision or mall. That can leave the impression that developers pay for favorable reports.

“The public is so cynical about development projects,” Laurie said, adding they assume “where the money flows the influence goes.”

That sentiment rang true for John White, head of the Center for Energy Efficiency and Renewable Technologies, who does not support removing ratepayer funding of the CEC’s certification costs. “The CEC needs to be more independent, not less.” On the other hand, he added that taxpayer money should not be used because they do get any immediate benefit from a new plant.

The LAO recommended that the Legislature, which must approve the upcoming state budget, vote to remove the taxpayer subsidy and require ratepayers or generators to cover the full cost of siting because they reap the facilities’ rewards—income or electricity.

Others insisted ratepayers should get something more in return for their contribution. “Getting electrons at any price is not a sufficient benefit,” Heller said. For him, a fair trade-off would be regulated electricity rates instead of ones determined by a volatile market, or a stake in the plant.

A Senate Budget Subcommittee analysis agreed with the LAO recommendation that taxpayers should not fund plant licensing, while noting that if the ratepayers covered the increased siting costs, the charge in their bill (which is based on energy use and is about $5 a year) would rise 10 percent.

The funding matter also involves another issue, which is that the deregulation law eliminated the requirement that the CEC first assess whether a generation project is needed before certifying it. Laurie said it was possible to license a merchant plant that was not needed to meet energy demand, and if that were to happen, ratepayer funding could not be justified.

The Senate subcommittee will hold a hearing on the matter April 29 and also look at the other state energy agencies’ budgets. The governor proposed replacing the existing license fee structure with a flat charge on generators but his proposed $25,000 per application would fall far short of needed revenue.

One of the options at lawmakers’ disposal is using the new California Power Authority (CPA), which was given the authority last year to finance the building of sun-, wind- and fossil-fuel-powered plants. If the CPA became a significant player in the plant building business, the state energy supply could be cleaner and cheaper.

“That way,” Heller said, “ratepayers and taxpayers would not be bilked by private companies throughout the process.”