Sammy Roth

The Desert Sun

Warren Buffett has amassed a $70-billion fortune by taking the long view.

In the utility industry, the long view looks like this: People will always need electricity, which makes utilities relatively safe investments. And as renewable energy continues to displace fossil fuels — a trend that will almost certainly continue, whatever President Donald Trump might do — utilities stand to profit by building massive power lines connecting the far-flung places with the strongest wind and sunlight to the cities that need clean power.

That long-term outlook helps explain why Buffett's Berkshire Hathaway Energy purchased PacifiCorp in 2006 and then NV Energy in 2013, paying a combined $10.7 billion for utilities that serve 3.1 million customers across Idaho, Nevada, Oregon, Utah, Washington, Wyoming and part of Northern California. It also explains why PacifiCorp is trying to become part of California's electric grid — a controversial proposal backed by California Gov. Jerry Brown, but criticized by some environmentalists, state lawmakers, consumer advocates and labor groups.

Brown supports PacifiCorp's bid to join California's electricity marketplace, as do some environmental groups, because grid experts say it could reduce climate pollution and lower Californians' energy bills. Critics, though, fear grid expansion would backfire, resulting in increased climate pollution across the West and unnecessarily high energy bills for California homes and businesses.

One thing is certain: Buffett stands to profit.

For the last decade, PacifiCorp has been trying to build a $6-billion transmission project called Energy Gateway, which would generate a significant return on investment for Buffett and other Berkshire Hathaway shareholders — if PacifiCorp can convince regulators the project makes economic sense. Access to the California marketplace could give the utility the rationale it's been looking for to finish building the project and reap the profits.

California could benefit from PacifiCorp joining its grid, too. A study commissioned by the state grid operator found Californians could save tens of millions of dollars per year on their energy bills, and billions more if other western utilities follow PacifiCorp's lead. But critics say some Californians could end up with higher bills, especially if the state has to pay for big power lines like Gateway.

"We're not saying regional expansion has no economic or environmental benefits. It's just that they've been significantly overstated, and the risks have been underplayed," said Matthew Freedman, a staff attorney for the Utility Reform Network, a San Francisco-based nonprofit that advocates for ratepayers in government proceedings.

Regional expansion could also cause California to lose thousands of jobs building solar and wind farms, if developers are able to build clean energy projects in other states that they otherwise would have been built here. That possibility has made labor unions wary, especially because those other states tend to have lower wages and looser labor standards than California does.

Grid expansion could also reduce the likelihood of new geothermal development in California's Imperial Valley, since expansion would give California utilities easier access to Wyoming wind, a far cheaper option for hitting their clean energy targets. That possibility has frustrated the Imperial Irrigation District, which sees geothermal development as critical to improving the economic fortunes of its impoverished region, and to addressing the decline of the Salton Sea. The district has launched two lawsuits related to grid expansion, trying to poke holes in its economic and legal foundations.

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It's difficult to quantify the benefits of a regional grid, said V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies, a Sacramento trade group that supports expansion. He actually thinks the state's study underestimates the benefits. But getting people to agree "has proved elusive, because people are worried about what might go wrong," he said.

"To the skeptics, this is something to be viewed skeptically and suspiciously. To the proponents, it seems obvious," White said. "And I think the answer lies in between."

Most of California's electric grid is run by the California Independent System Operator, a quasi-governmental nonprofit known as CAISO. The agency oversees the wires owned by Southern California Edison, Pacific Gas & Electric, San Diego Gas & Electric and a few smaller utilities, carefully balancing supply and demand every moment of every day. Several other California utilities — including the Imperial Irrigation District, the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District — run their own grids, independent from the CAISO system.

In April 2015, PacifiCorp and California said they would explore the possibility of the Buffett-owned utility joining the CAISO system. That would create a unified six-state electric grid linking Los Angeles, Portland and Salt Lake City. The unified grid would stretch as far north as Washington's Okanogan-Wenatchee National Forest, and as far east as Buffalo, Wyoming, a small town at the foot of the Bighorn Mountains in the state's coal-rich Powder River Basin.

The main benefit of a unified regional grid, supporters say, is that it would be easier for electricity to flow across state lines, improving efficiency and lowering costs for everyone. California would get easier access to cheap Wyoming wind and would be able to sell its excess solar energy to other states, reducing the cost to consumers of meeting an ambitious 50 percent clean energy mandate.

"A regional grid will enable greater renewable development, lower costs and carbon emissions and improved electric reliability," Gov. Brown wrote in an August letter to legislative leaders.

PacifiCorp would benefit, too, or else it wouldn't be interested. (The utility operates as Rocky Mountain Power in Idaho, Utah and Wyoming, and as Pacific Power in California, Oregon and Washington.) A preliminary 2015 study commissioned by PacifiCorp and CAISO found the Buffett-owned utility could save as much as $122 million annually by 2020, and as much as $272 million annually by 2030. Some of those savings would stem from easier access to cheap solar power from California, where solar farms sometimes flood the grid with more energy than the state can use.

PacifiCorp's cost savings would lead to lower bills for customers, utility officials say.

"The majority of it is a reduction in our power costs, our costs that are ultimately paid for by the customers," said Joseph Hoerner, PacifiCorp's vice president of energy supply management.

Cost savings aren't the only potential benefit for Berkshire Hathaway.

Investor-owned utilities like PacifiCorp make money by spending money, because government regulators allow them to recoup their costs, plus profits, through customers' electricity rates. In fact, regulators approve guaranteed profit margins for big projects like power lines, to make sure investors are willing to spend money on the high-cost, relatively low-margin infrastructure that keeps the grid running. Utility investors can generally expect a return on investment around 10 percent for transmission lines.

PacifiCorp proposed the Energy Gateway transmission project in May 2007, a year after Buffett bought the utility. It's a massive undertaking: more than 1,900 miles of new power lines stretching across six states, with an estimated price tag of $6 billion. Three of Gateway's eight segments have already been built, with several others fully or nearly permitted.

But the utility's original reason for building most of those lines no longer holds. PacifiCorp initially said Gateway would help it meet growing demand for energy in parts of its service territory, but that growth has not materialized: Electricity sales have largely flatlined over the last decade in the five states Gateway would serve, according to Energy Information Administration data.

"PacifiCorp found that they didn't really need it for the demand they thought they were going to have," said Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming. "So the question became, what would justify continued development of it?"

One potential answer: PacifiCorp could use Gateway to send wind energy to California.

The Golden State is hungry for clean power. Utilities are required by state law to get 50 percent of their electricity from renewable sources by 2030, as part of the state's far-reaching plan to fight human-caused climate change. While Gateway wouldn't stretch all the way to California, it would help PacifiCorp reach the transmission lines it needs to move the energy the rest of the way.

RELATED: How climate change is already harming human health, the economy and national security

At least one developer building a wind farm in Wyoming, the Denver-based Anschutz Corporation, is planning to build its own power line to send electricity to California. But that project is something of an exception; in general, institutional and financial barriers make it difficult for electrons to move across state lines. All that would change if PacifiCorp joins the California grid.

PacifiCorp spent about $1.5 billion building the first three segments of Gateway, leaving an estimated $4.5 billion to spend on the rest of the project. Shareholders' expected return on equity is 10.3 percent, meaning the profits would be substantial. And linking up with the California grid might help the utility unlock those profits.

Still, it's no sure thing the rest of Gateway would get built if the grid expansion happens. Even if PacifiCorp joins CAISO, the utility would need to go through the long, arduous process of convincing regulators that the new Gateway power lines are needed, that they're the best available option for meeting demand and that they're worth charging consumers to build.

Sarah Edmonds, vice president and general counsel for PacifiCorp's transmission company, acknowledged that a unified regional grid might help the utility build Gateway. But she rejected the idea that Gateway is a driving force behind PacifiCorp's bid to join CAISO.

"There’s no way of just getting Energy Gateway built automatically," she said.

Gateway is the biggest transmission proposal in the West, but it's far from the only set of power lines a regional grid could facilitate. California's Pacific Gas & Electric utility announced last year that it would partner with TransCanyon — a joint venture of Berkshire Hathaway and Pinnacle West Capital Corporation, parent company of the Phoenix-based utility Arizona Public Service — to build transmission projects in California. If CAISO starts expanding across the West, more utility-led efforts to to build power lines connecting big cities with the best sunlight and wind are likely to follow.

From a renewable energy perspective, that could be a good thing. While environmentalists are sometimes skeptical of transmission lines, which can interrupt wildlife corridors and harm birds, many clean energy advocates say new power lines are needed to help climate-friendly solar and wind energy displace climate-altering fossil fuels.

"To make renewables work, you need a larger grid," said Godby, the University of Wyoming energy economist.

Still, ratepayer advocates in California and other states have questions about who will pay for big transmission projects like Gateway, should CAISO expand to include PacifiCorp.

Under CAISO's most recent expansion proposal, the costs of existing and planned power lines in California would be paid for by Californians, and the cost of existing and planned power lines in PacifiCorp territory would be paid for by PacifiCorp customers. The costs of most new projects would be paid for by whichever customers benefit from them, in proportion to how much they benefit.

But there would be one big exception: certain power lines driven by state-level policies, like California's 50 percent renewable energy mandate. That could include Energy Gateway, and probably other projects designed to bring out-of-state wind to California. A group of state officials called the Western States Committee would determine who pays for those projects and in what proportion.

Under CAISO's latest proposal, each state would get one vote on the committee, but it wouldn't be majority rule. Five of six states would need to approve any decision, meaning any two states — Utah and Wyoming, for instance — could block a proposal they don't like. And California would have veto power, since it accounts for 80 percent of electricity demand across the six-state region.

The California veto has raised red flags for officials in Utah and Wyoming, who worry California would force them to share in the cost of projects like Gateway. They don't think their residents should have to pay for power lines designed to satisfy California's push for renewable energy. Even in states with similar climate goals as California, some consumer advocates are wary.

"You could imagine a transmission line that benefits (California) benefits the region, but... the costs are overly assigned to PacifiCorp's residential customers, and we end up getting more costs than we get benefits," said Bob Jenks, executive director of the Citizens' Utility Board of Oregon.

Within California, too, some critics of grid expansion are nervous about consumers paying for massive power lines. Freedman, from the Utility Reform Network, thinks CAISO has underestimated the cost of new transmission to Californians and overstated the economic benefits of a regional grid. He thinks one of the main beneficiaries of new transmission would be big utilities.

"I've listened to Stephen Berberich tell groups that transmission costs are not going up under a regional (grid operator)," Freedman said, referring to CAISO's president and chief executive officer. "How do you have transmission costs not go up under that scenario?"

Public power agencies, which are owned by local communities rather than by investors, are especially concerned about transmission costs. They tend to have much lower electricity rates than investor-owned utilities, and they're more likely to use local resources than out-of-state wind to meet their renewable energy targets. They're worried their customers will be forced to help pay for expensive power lines that don't benefit them directly.

"How much of (PacifiCorp's) new facilities that might get built are California consumers going to be expected to pay?" asked Tony Braun, a lawyer for the California Municipal Utilities Agency, whose members include dozens of local utilities. "We get fearful that significant chunks of that cost exposure will come to California, because we're so big in proportion to other parts of the West."

Another major selling point for supporters of grid expansion: jobs.

As part of a study commissioned by CAISO, private-sector consultants examined a scenario where most western utilities join the California grid, and California lawmakers continue to require most of the state's clean energy generation to come from within the state. By 2030, the study found, California would gain about 9,900 jobs, relative to continuing current practices. If instead lawmakers were to ease the rules requiring in-state generation, the job gains from grid expansion would jump to 19,300 by 2030.

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But there's a trade-off involved. While the scenario prioritizing in-state generation would create more jobs, the study found, it would also lead to fewer electricity-bill savings, because Californians wouldn't be able to tap as much cheap out-of-state wind. The in-state scenario would lead to $1 billion in annual ratepayer savings, with the out-of-state scenario leading to more than $1.5 billion.

"Those rate benefits really start to help disadvantaged communities, because such a high proportion of their income is going to pay their utility bill," said Phil Pettingill, CAISO's director of regional integration.

California labor unions, though, prefer the scenario where more renewable energy facilities are built within the state. And some academic experts are skeptical that a focus on out-of-state generation would be the best thing for California, even with the greater ratepayer savings.

Labor economist Carol Zabin, the director of research at UC Berkeley's Center for Labor Research and Education, noted that jobs building and operating solar and wind farms in California are generally high-wage union jobs. When the quality of those jobs is taken into account, she said, the in-state scenario arguably has greater benefits for California than the out-of-state scenario, even with smaller projected ratepayer benefits.

In both scenarios, she noted, CAISO's study finds that high-income households would see bigger income gains than low-income households — making those middle-class jobs even more important.

"There's different forms of economic development, some of which are really supporting the middle class, and some of which are really supporting the trends of what the market is trending to produce — which, as we know, is extreme inequality," Zabin said.

More fundamentally, it's unclear how many California jobs would actually be created by a regional grid under either scenario.

Nearly all of the new jobs projected by the CAISO-commissioned study would be "indirect" jobs generated by the increased economic activity that would theoretically result from lower electricity rates, rather than "direct" jobs building or operating solar and wind plants. Sectors like sales and marketing, office support and food services could see some of the biggest gains in indirect jobs.

In both 2030 scenarios, meanwhile, California would lose between 5,000 and 10,000 jobs in the wind industry. California solar jobs would increase slightly in the 2030 scenario that prioritizes in-state generation, while falling by more than 15,000 in the scenario that allows more out-of-state generation. Many of those jobs would instead be created by energy projects in other states.

Even if Californians have more money in their pockets because of lower electricity costs, the loss of high-paying clean energy jobs would hurt the state, said Betony Jones, a climate policy specialist and associate chair of UC Berkeley's Don Vial Center on the Green Economy.

“We tend to just look at the cheaper power without considering how we get there. Where that investment takes places is really important, because it's jobs, and where people spend money, and that creates more jobs," she said.

The authors of CAISO's study had a different perspective. The indirect jobs created by increased economic growth, they wrote, would be a huge boon to California.

"Many of the investment-driven (renewable energy construction) jobs may be temporary, while those fueled by ratepayer savings will be sustained and support higher long-term community income and expenditure," read a portion of the study prepared by two consulting firms, Aspen Environmental Group and Berkeley Economic Advising and Research. "Moreover, the latter are widely dispersed across service sector employment, providing more diverse training and income earning opportunities."

Then there's the Imperial Irrigation District.

For those not familiar with the district, it's an energy and water utility that serves customers in the Imperial Valley in the far southeastern corner of California, as well as some residents of the eastern Coachella Valley near Palm Springs. The utility's home base, Imperial County, has California's highest unemployment rate, generally around 25 percent, and one of its lowest median household incomes, about $41,000. The Imperial Irrigation District is arguably the most powerful force in the region, and it has advocated forcefully for policies that would improve the area's economic fortunes.

Imperial County also has some of the highest rates of asthma hospitalizations and emergency room visits for children in California. That problem is expected to get worse in the coming years due to the shrinking of the Salton Sea, a large inland lake with no natural inflows. As the waters recede, vast stretches of dry lakebed are being exposed, allowing powerful winds to kick up dust, polluting the region's air. That dust, which would be harmful enough to human lungs on its own, is thought to be laced with heavy metals and pesticides from farm runoff.

State and local officials are grappling with the best way to address the Salton Sea. The Imperial Irrigation District has long argued that the vast geothermal energy reservoir beneath the lake's southern shore should be part of the solution.

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If California promotes the development of geothermal energy, district officials say, new power plants would spring up around the Salton Sea, covering exposed lakebed that would otherwise spew dust. The energy generated by those facilities would be zero-carbon, helping California meet its climate goals. And geothermal development would create jobs in Imperial County.

There are already 11 geothermal plants by the Salton Sea. But development has stalled in recent years, since it's much more expensive to build a geothermal plant than to build a solar or wind farm. The Imperial Irrigation District has urged state officials to incentivize or require new geothermal anyway, arguing its high up-front costs don't take into account its social and environmental benefits.

That's why CAISO expansion has district officials worried. If California utilities can access cheaper clean energy from other states, they may have even less incentive to buy Salton Sea geothermal.

"It looks to me like a lot of what is driving this regionalization move is to build out transmission throughout the West, for the return on investment for established players in that space, and to export renewable energy projects outside California," said Kevin Kelley, the Imperial Irrigation District's general manager. "And for IID — which has made it a cause to convert the exposed lakebed at the Salton Sea into a kind of renewable energy center — it seems counterintuitive that California would be chasing after wind power in Wyoming."

The district operates its own electric grid, independent of CAISO, and it has a turbulent relationship with the state grid operator. The utility sued CAISO on antitrust grounds in 2015, arguing that the grid operator had tried to "crush IID out of existence" through anti-competitive practices, in an effort to force the district to give up its independence and join the CAISO system. That lawsuit is ongoing.

District officials say if CAISO expands to include PacifiCorp, standalone grid operators like IID could face even more economic pressure, making it difficult for them to maintain their independence.

"A large part of our rate base, our customer base, is economically disadvantaged. And our historically low energy rates — it's not just a calling card for the district, it's a must-have for its ratepayers," Kelley said. "And our independence is central to that low electricity rate."

Some energy-industry observers have been puzzled by the district's combative approach to the state grid operator. Freedman, from the Utility Reform Network, sympathizes with the district's push for new geothermal development but said he doesn't "fully understand why IID has such hostility to CAISO." And CAISO President Stephen Berberich said the district's fears are unfounded.

"They're concerned that we have an interest in them joining our footprint, and I think nothing can be further from the truth. They can continue to operate however they want," he said.

RELATED: On Salton Sea and energy, it's IID versus the world

Those kinds of assurances haven't stopped district officials from fighting CAISO expansion in court.

Last summer, the utility sued CAISO on public records grounds, demanding all of the data used to calculate the benefits of grid expansion. CAISO had already published most of that data, but district officials ostensibly believe that if they can get the rest of it, they'll be able to prove grid expansion is bad for Californians. (CAISO actually agreed to give the district everything it wanted, but only if the district would sign a non-disclosure agreement covering parts of the data, for gird security and market sensitivity reasons. The district didn't like that condition, so it sued.)

That case is ongoing. So is the district's public records lawsuit against the University of California system, seeking emails from UC Berkeley and UCLA law professors who helped write a legal opinion for CAISO last year.

CAISO asked the law professors to determine whether grid expansion would create a legal avenue for the federal government to undermine California's climate policies. The professors concluded that while California already faces some risk of federal interference, grid expansion would do nothing to increase that risk.

But Mike Aguirre, a San Diego attorney representing the Imperial Irrigation District in its public records lawsuits, thinks the professors intentionally downplayed the risk to satisfy CAISO — a conclusion he bases on a few of their emails to each other, which he received via a public records request to CAISO. He says he needs more emails to prove his case.

One of the law professors, Ann Carlson, said she and her colleagues were under no pressure from CAISO to reach a conclusion favorable to grid expansion. She described a supposedly incriminating email Aguirre cites in his lawsuit — in which one of her colleagues asks whether they should take a closer look at a recent Supreme Court decision — as "doing our diligence."

"We were behaving as any normal lawyers would behave, and that is to seek the input of our colleagues," said Carlson, the co-director of UCLA's Emmett Institute on Climate Change and the Environment.

The push for a regional grid has lost steam since Trump's election. On top of all the concerns raised by the proposal's critics — economic, political and environmental — some observers think Brown and the California Legislature will simply be too busy fighting the Trump administration on too many fronts to focus on a complicated, relatively low-priority issue like grid expansion.

At the same time, some supporters of a regional grid say Trump's election makes it more important than ever for California to work with other states on reducing climate pollution.

Among them is Don Furman, a former PacifiCorp executive who now advocates for CAISO expansion through a coalition of environmental groups and energy companies called Fix the Grid West. He pointed to comments made by Brown, California Senate leader Kevin de León and Assembly leader Anthony Rendon in the weeks after Trump's November victory.

"What de León and Rendon and the governor all said in the aftermath of the election, that we're going to redouble our efforts to eliminate carbon and create a green economy — I mean, this is the backbone of it," Furman said, referring to grid expansion. "It's time to get off of the extraneous issues and figure out how to build a clean grid for the 21st century."

So will Brown charge ahead, or will he give up on his dream of a regional grid?

The governor's office declined to answer detailed questions about his plans, or to say if Trump's election changes his calculus. Spokesperson Evan Westrup pointed to two letters Brown wrote last year, in which he pledged to bring a revised proposal to the Legislature and other states in January 2017. Those letters "reflect where the administration stands," Westrup said in an email.

That was late last month. So far, no bill has been introduced in the Legislature, which would need to approve any CAISO expansion.

Some observers suggested Brown is already backing away from his regional grid plan, or at least making it less of a priority. They pointed to his recent nomination of Cliff Rechtschaffen and Martha Guzman Aceves, two close advisers who had been deeply involved in grid expansion, to serve on the California Public Utilities Commission.

Still, in his State of the State speech last month, Brown alluded to the fact that California can't solve the climate crisis alone. He touted the "Under 2 MOU," a California-led agreement to limit global temperature increases that's been signed or endorsed by 167 cities, states, provinces and countries, collectively representing one billion people. He hinted at the need for even more cooperation.

"We can do much on our own and we can join with others — other states and provinces and even countries, to stop the dangerous rise in climate pollution," Brown said. "And we will."

Sammy Roth writes about energy and the environment for The Desert Sun. He can be reached at sammy.roth@desertsun.com, (760) 778-4622 and @Sammy_Roth.

(Editor's note: Travel to Wyoming and Sacramento for this series was funded by the Society of Environmental Journalists, through its Fund for Environmental Journalism.)