Trump Donor Buys California Power Plant, Asks Feds To Change Energy Market
By David R. Baker, SAN FRANCISCO CHRONICLE
August 29, 2018
Late last year, a company tied to one of President Trump’s campaign donors took possession of a bankrupt power plant in Kern County.
Now, the company has asked federal regulators to change California’s electricity market, potentially making it more lucrative for power plants that burn fossil fuels.
Owners of the La Paloma power plant, near the oil-patch town of McKittrick, filed a complaint with the Federal Energy Regulatory Commission in June, arguing that the state’s current rules and fast-growing use of renewable power are killing existing plants.
Calling the situation unfair, they asked the commission to create in California a new, centralized market that would compensate plant owners for their ability to supply electricity to the grid in a pinch. Plants would be paid for agreeing to generate power if needed, in addition to being compensated for any electricity they supply.
Critics consider it a politically tinged bid to prop up a failing power plant. A well-connected company, they say, wants the federal government to interfere in a state whose energy policies are the polar opposite of Trump’s.
The company that now owns La Paloma is owned, through a chain of subsidiaries, by Beal Bank, a private bank in Texas. The bank’s founder and chairman — Daniel Andrew “Andy” Beal — donated to Trump’s presidential bid and inauguration and served as a campaign adviser. Beal Bank, a creditor to La Paloma’s previous owner, took possession of the plant last year through a $150 million credit bid during bankruptcy proceedings.
“Basically, this is a challenge to California’s sovereignty,” said Jamie Court, president of the consumer advocacy group Consumer Watchdog. “The market determined La Paloma wasn’t needed. And this is an attempt to save it.”
An attorney representing the plant’s new owners, CXA La Paloma, argued that the system the owners propose would be better for consumers as well as power plant owners.
California utilities already must line up enough resources to supply all the electricity they could potentially need. But they do so through bilateral contracts rather than a centralized market.
“La Paloma is not looking for and has not asked for any form of subsidy or bailout,” said attorney Joseph Williams of Norton Rose Fulbright. “Rather, La Paloma is seeking an opportunity to compete in a fair and nondiscriminatory marketplace. We think it’s the best solution for everyone.”
La Paloma’s request comes at a sensitive time.
California legislators are weighing a bill, AB813, that would share control over the state’s electricity grid with neighboring states. Gov. Jerry Brown is pushing hard for the bill, touting it as a way to better use the large amounts of solar power California now generates at midday, while giving the state more access in the evening to wind power generated elsewhere in the West.
Opponents of the bill, however, fear sharing control of the grid with coal-dependent states like Wyoming and Utah. And they worry the new, multistate grid management organization would be more vulnerable to interference from FERC and the pro-coal Trump administration. Most of California’s grid is currently managed by the California Independent System Operator, whose board is appointed by the governor.
“You’re going to find we have a lot less control, and this (La Paloma request) is an example of the kinds of things you’ll see — multiplied,” said Kathryn Phillips, director of the Sierra Club in California. “Abandoning our control, especially at a time like this, is pretty dangerous.”
Supporters of a regional grid, however, look at La Paloma’s request and draw the exact opposite conclusion, even if they don’t agree with the request itself. The California Independent System Operator, they note, is already under FERC’s jurisdiction.
“We’re regulated by FERC right now,” said Carl Zichella, director of Western transmission research for the Natural Resources Defense Council, which backs the regional grid bill but opposes La Paloma’s proposal. “If they wanted to go down this route, they could do it tomorrow, and we’d have to listen to them.”
The La Paloma plant, which runs on natural gas, opened in 2003 and can generate about 1,000 megawatts of electricity, roughly enough for 750,000 homes. But, like many traditional power plants in the state, it has had trouble adapting to California’s changing electricity market, rapidly being reshaped by the state’s fight against climate change.
California law requires utilities to increase their use of renewable power. State legislators are also considering a bill that would require that all of the state’s electricity come from carbon-free sources by 2045. Companies have responded by building wind farms and solar power plants, to the point where the state often generates more solar electricity in the middle of the day than it needs. Conventional power plants get crowded out.
And yet, they’re still needed. The output of solar plants plunges late in the afternoon, just as Californians are coming home from work and school and turning on electrical appliances. Winds in California tend to blow strongest at night, but there’s still a gap that, for now at least, must be filled by conventional power plants. But many of those plants are struggling.
“It’s gotten to the point where it’s very close to threatening reliability (of the grid),” said Scott Miller, executive director of the Western Power Trading Forum, a group that advocates for free energy markets.
The kind of capacity market CXA La Paloma wants, he said, would help ensure the plants that the state needs are financially viable, helping integrate renewables onto the grid. And as a centralized market, it should ensure that utilities — and their customers — get the best possible price for lining up needed capacity.
“A number of our members have felt this way about the California market for some time,” he said. “This has nothing to do with Trump or subsidies. This is about a market.”
Tyson Slocum, director of the energy program at the Public Citizen advocacy group, said similar markets elsewhere have yielded higher costs for consumers, not lower.
“La Paloma’s entire argument is based around what is in La Paloma’s best interests,” he said.