President Obama’s announcement that the Federal government will, as part of its effort to reduce carbon emissions, commit $8 billion in federal loan guarantees and other programs towards nuclear power development is still another blow to California taxpayers.
Because, California tax dollars may comprise a big chunk of that $8 billion, and California will receive exactly zero of it. That’s right, a big fat 0. These programs are, by design, intended to help the “first in kind” projects get off the ground.
Worse, President Obama can’t send any of that money to California. First, California has a moratorium on nuclear power development. But, even if that hurdle were breached, there is another more complex problem.
The December 1995 California PUC Order restructuring the state’s utility industry, bifurcated the traditional generation and distribution roles of regulated utilities. The federal alternative energy programs, under which Obama’s nuclear funding is administered does not account for these changes. As a result, even if California lifted its moratorium, there is no practical way to structure financing for such a highly capital intensive project.
The list of ironies is endless:
It was California that passed AB32, asserting its leadership in the fight against global warming.
Leading scientists in the field gathered at the Scripps Institute of Oceanography last Fall to deliver the sober message that without nuclear, California cannot meet the AB32 targets.
California’s restructuring was done at the behest of the Federal Energy Regulatory Commission, which then failed to respond when the FERC regulated market fell prey to Enron and the same derivative traders that would later collapse the mortgage market.
The Federal alternative energy law is actually modeled after California’s long ago established program, which is largely responsible for the fact that Californians consume about half the amount of energy per person as the rest of the country. California politicians, large and small, have steered away from dealing with energy since the 2000 debacle, fearing getting caught up in a political quagmire driven by the ghost of Enron’s media disinformation campaign. The result:
California taxpayers and rate payers will contribute billions of dollars to help provide cleaner, cheaper power … and jobs in largely southern states and receive no collateral benefit.
It is hard to be critical of California politicians for avoiding the energy issue given the incredible amount of just plain inaccurate assumptions they have to contend with. The PUC has even removed its December 1995 Order from its web site, contributing to the myth that it was the legislature that directed restructuring by passing AB1890 the following year. I get it. I lived it.
I went to Washington in 2000 to present to FERC the evidence of market manipulation. They ignored me. That did not surprise me. They were in Enron’s philosophical pocket. Staff and commissioners worshipped former FERC leader and Enron chairman Ken Lay. But, what was shocking to me was Enron’s ability to manipulate public opinion and cower California politicians. It was here that I learned two tough lessons: that truth had no intrinsic power and that California had no clout in the federal government.
I also learned that the California Congressional delegation was largely detached from California itself. A crisis that was very real and tangible for California residents and businesses was esoteric to our elected representatives buried in the mind numbing drivel that occupied their personal energies on “The Hill”. It was a complex issue. It required some time to digest. But, to most of the delegation, it was at best, a distraction, at worst, a tar pit.
The California D.C. crowd actually preferred to accept the bogus Dick Cheney claim that “California did this to itself” rather than risk an ounce of political capital to reconsider the 1998 Congressional decision to remove energy trading from the regulatory authority of the Commodities Exchange Commission. It was this action that gave Cheney’s good buddies at Enron a free pass to pillage the California market on Enron’s own, unregulated, trading floor.
Eventually, Enron collapsed, the courts caught up with FERC’s indiscretions, and the traders moved on to other prey. But, no one in Washington has moved to compensate California ratepayers for the billions of dollars stolen through FERC regulated tariffs, now judged illegal. And, elected officials in California have largely left the effort to reconstruct a rational electricity delivery system to the California P.U.C.
This indifference, or fear, or smart political calculus—however you judge it—has already cost California billions. But, if our elected officials continue to sit on the sidelines and ignore the momentum building behind nuclear power it will cost us far more. Californians may choose to pass on the nuclear option. But, if they do, so they should do it consciously, not through the indifference or fear of our elected representatives.
Solar and wind are great but, the ugly truth is that they are solutions measured in “megawatts”. Unfortunately, the challenge ahead of California is measured in “terawatts”. No debate will have more consequence, environmentally and economically, to California’s future. We ought to at least be a party to the discussion before more California money goes to other states that are at the table.
A good place for policymakers to start is the Energy Law Journal article entitled “FINANCING THE NUCLEAR RENAISSANCE: THE BENEFITS AND POTENTIAL PITFALLS OF FEDERAL & STATE GOVERNMENT SUBSIDIES AND THE FUTURE OF NUCLEAR POWER IN CALIFORNIA.” It is a comprehensive look at the practical financial questions facing California prepared by structured finance experts at the law firm of Latham and Watkins, and it is attached to this article for your convenience.