Who Pays for this Electricity?

California pays 3 times more to wholesalers to take their energy than everywhere else combined (Source: EIA)

Sometimes, regional transmission organizations (RTOs) will pay wholesale buyers to take the electricity they generate. It is equivalent to an oil company having a gas station pay you to fill up your tank!

That unusual circumstance was just reported on by the U.S. Energy Information Administration (EIA) for the year 2011. It is discussed in this boring sounding article:
Negative wholesale electricity prices: possible, but rare
– EIA, 6/18/2012

It’s enlightening to look at the reasons behind it, where this happens, and what it means.

What is “negative wholesale electricity”?

That is excess electricity production that RTOs pay wholesalers to take off their hands. RTOs are non-profits that handle 60% of all U.S. electric power.

Why on earth, you may ask, would RTOs do such a nonsensical thing? Though this be madness, there is method in it!

The EIA identifies several reasons:

  • Renewable energy operators do so for tax breaks
  • Nuclear operators for technical reasons and cost recovery
  • Hydroelectric operators because of regulations
  • Steam turbine operators for maintenance savings and fuel-cost penalties

You can’t really start and stop a nuclear power plant at will. That’s not possible. Its more feasible and ultimately cheaper to run nuclear plants at full power even in the rare times they are overproducing electricity and you pay someone to take the excess.

Hydroelectric dams have federal and state regulations requiring they maintain water flow for flood control and maintain proper fish ladder flows during migrations. In spring that occasionally requires them to overproduce electricity. This is most common in the Pacific Northwest power grid under the federal Bonneville Power Administration.

According to the EIA, negative prices occur more often in markets with large amounts of wind generation, hydro, and/or nuclear.

California pays out 3 times more for someone to take their excess power generation than all the other regions combined.

Renewables and Negative Profits

Fossil fuel electric plants, like natural gas and coal, can be turned on and off at will. More are brought online as needed and shut off when not needed. Renewable wind and solar, hydro and nuclear plants don’t have that flexibility.

Renewables are also more costly electricity sources than coal and natural gas sources.  Another difference between fossil and renewable electricity generation is renewables get taxpayer supported subsidies. Fossil fuel electricity generation neither needs nor gets subsidies.

To shutdown a renewable source is to shutdown a guaranteed tax-supported revenue stream.

A worst case scenario is for ratepayers to pay a higher energy cost and then give it additional taxpayer supports while the company pays a wholesaler to take the excess electricity they produce.

A Sad Renewable Wind Energy Tale

My sister lives in Oregon. In recent years ARRA-funded wind farms sprouted up in the Columbia River Gorge like mushrooms. She was asked by her electricity provider if she’d be willing to support renewable, eco-friendly wind energy with an additional $25/month added to her bill.

Being a dutiful Democrat who wants to “do the right thing”, she agreed. She did so until she read in the local paper that every kilowatt generated by all those new wind turbines went to California. She was “doing the right thing” for California, not for herself in Oregon with her “donation”. She stopped.

I don’t have the heart to tell her that she was already supporting California’s green energy program through her federal taxes and that her kids and grand kids will be paying for California’s new Oregon-based wind farms funded through federal deficit spending.

Tax-subsidizing negative wholesale renewable energy production is more illogical than giving $4 billion in tax breaks to oil companies.

Conclusions

For tax subsidies, for technical reasons and for other losses companies will occasionally pay someone to take their excess electricity production. It’s not a huge problem but it does happen.

According to the EIA… wind, hydro and nuclear are most prone to this.

Who ultimately pays for that? Ratepayers and taxpayers do, of course. Most of them in California. Why?

It is no surprise California is shelling out three times more for wholesalers to take electricity off their hands than do all other regions combined. California has the highest requirements for tax-supported renewable energy in their power grid than does any state in the United States.

It is highly advantageous for renewable energy producers to pay wholesalers to take their excess power:

  • California requires electric providers produce a certain percent of their power from renewable sources
  • California, as well as the federal government, heavily subsidizes renewable energy sources

This encourages California energy suppliers to pay wholesalers to take any excess renewable energy they produce. It helps them meet their government required quotas and they make all or part of it back from taxpayers who subsidize them. What they don’t get back they simply pass off on ratepayers.

Ultimately, this does not add very much to an individual ratepayers bill, but it does add some.

The real tragedy, though… taxpayers once again are getting taken to the cleaners and overall energy costs unnecessarily go higher.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Jun 20, 2012, in ARRA, culture, economics, Life, news, Opinion, Politics, Taxes, The Stimulus, Thoughts. Bookmark the permalink. 4 Comments.

  1. I take my hat off to you, AZ, for wading through that report. As John Steinbeck wrote: “The best laid plans of mice and men often go awry.

    • Heck, I left out the other EIA report from Feb 23rd on the same subject. That one deals mostly with the Pacific Northwest power grid. I’ll save that for another time.

      That report came out before this happened, but I bet your didn’t know that all those many hundreds of shiny new white windmills in the Columbia River Gorge – paid for by ARRA – had to be temporarily cut off the Pacific Northwest power grid this year because they maxed out the capacity of the system!!

      They were not cut off in 2011, but were responsible for 80 of 84 interstate power surges nationwide where wholesalers were paid to accept their excess power!

  2. Yep in the RTO world, negative prices mean excess generation is turned on or not enough load. I love the negative wholesale prices in the winter in northern Minnesota which also has lots of wind. There the RTO would pay you to turn on your electric space heater when in International Falls it is -35 or something awful. Physics and economics, have a way of trumping policy founded on ideologies or dogmas.

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