Why Buffett Needs West to Get Over Enron and Link Power Grids

California has more renewable energy than it can handle.

Elsewhere in the U.S., states with extra power hand it off to neighbors when they need it. That’s not happening in the West, where cooperation among electrical grids has historically been an issue. The result: Individual providers can find themselves shutting down their extra power rather than sending it elsewhere.

“It makes my heart ache to be in our control room and see us turn off renewables that would provide green, zero-marginal-cost power for somebody else’s advantage,” said Steve Berberich, chief executive officer of the California Independent System Operator Corp., which runs the state’s power grid. “How long do you want to let that go on?”

California and utilities owned by Warren Buffett’s Berkshire Hathaway Inc., including PacifiCorp and NV Energy Inc., are now on a mission to end that thinking as quickly as possible.

In their view, the situation is urgent. Berkshire Hathaway turned on the country’s two largest solar farms in California last year and Apple Inc. invested in another that will supply it for 25 years. Governor Jerry Brown has ordered the state’s utilities to get half their power from renewable sources by 2030. The logjams need to be removed if renewable power is to flow smoothly.

Grid Patchwork

Electric companies around the world have been improving connections for years, while the western U.S. remains a patchwork of systems that don’t have the ability to trade excess supplies quickly across their borders. It’s a legacy of a regional crisis 15 years ago when traders including Enron Corp. shut natural gas pipelines and generating capacity to cut supply, which drove power prices to records and caused blackouts. As a result, utilities are still hesitant about doing business with the Golden State.

The U.S. West, with plentiful renewable resources, is arguably the region of the country most in need of collaboration. Europe, Japan, Mexico and most of the U.S. are stepping up cooperation to balance fluctuations across wider expanses. Meanwhile, the West has 38 entities controlling power lines in an area larger than India. Past efforts to organize have had marginal success.

“Watch what’s going in California because it’s a precursor of what’s going to happen” elsewhere, said Michael Blaha, Americas power and renewables research director at Wood Mackenzie Ltd. “In the West, they will ultimately need to cooperate over a bigger and bigger issue. How are they going to get the renewables in and meet policy goals demanded by the states?”

Dispatching Power

Electric companies including ITC Holdings Corp. and U.S. Grid Co. will discuss managing the onslaught of renewables at the IHS CERAWeek energy conference in Houston on Thursday. In the West, Berkshire’s PacifiCorp utility and the California grid started a market 15 months ago that allows them to electronically dispatch power across their systems every five minutes, quick enough to move a sudden burst in wind power across states to a place that can use it. Berkshire’s NV Energy joined in December.

That reinvigorated efforts by a group of Northwest utilities to create their own market, though California and PacifiCorp are trying to lure them to theirs, arguing that they will save money. Puget Sound Energy Inc. and Arizona Public Service were convinced and will join that market this fall, Portland General Electric Co. next year. Idaho Power is thinking about it.

Past efforts have failed because they attempted to pull together everyone at once, said Stefan Bird, chief executive officer of PacifiCorp’s Pacific power utility. This time around, they are trying to win over utilities one at a time, he said.

To understand what’s at stake, take a look at California’s power market on April 5, 2015. Sunny skies boosted solar power way above forecasts, while slack demand and constrained transmission capacity stranded the energy. Wholesale power near Los Angeles averaged minus $24 a megawatt-hour, a point so low not even tax incentives made it economic to keep solar and wind farms running.

Southern California spot on-peak powerwas down 12 percent at about 8 a.m. local time Thursday at $16.02 a megawatt-hour. Renewable generation accounted for 29 percent of demand at 8:50 a.m. on the California grid.

Power Backup

At times, the renewable power pooling up is so voluminous that generators have to pay utilities to take it. By 2020, California may be forcing 10,000 megawatts -- the equivalent of 10 nuclear reactors -- out of service at times, said Berberich, the chief of California’s grid.

While the Supreme Court this month put on hold President Barack Obama’s plan to cut greenhouse-gas emissions from power plants, most western states have their own renewable power targets. The grids will have to accommodate that power.

Berberich has been visiting other states in an effort to convince them that it’s “not as dangerous to work with us,” he said. “There are still some people sore about the energy crisis and a lot of folks don’t like California because it’s the big boy on the block,” he said.

— With assistance by Mark Chediak