50 Comments
Mar 9Liked by Isaac Orr, Mitch Rolling

For the uninitiated, like myself, I always considered that the logic of electricity production would lead to using the most efficient methods. But as with most things, once the government is involved, the only logic is to game the system to generate as much profit as possible. The fact that the climate hysteria is such an effective cloak for these activities is yet another reason to try to destroy that mania.

What an excellent and upsetting article. thanks

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As an uninitiated fellow like yourself, this post opened my eyes to understanding what's really going on.

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This is not a logical conclusion at all. You think that "climate hysteria' (aka the necessary ending of burning fossil fuels and a massive decrease in energy consumption overall in the US) should be destroyed because it leads to the military industrial complex making money and governments being corrupt?

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Mar 9Liked by Isaac Orr, Mitch Rolling

It is just absolutely beautiful that these folks have convinced everyone that W&S are the cheapest electricity while also ensuring their regulated rate base go up as fast as possible. I mean, you have to hand it to them for assembling all this together with climate NGOs and politicians and making everyone feel good about “doing the right thing” at the same time.

Unfortunately, the reality is right in front of our faces, and it doesn’t match the story being told.

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Mar 9Liked by Isaac Orr, Mitch Rolling

Very very well done Bad Boys, no one is talking about this. There are utilities like AEP-Ohio that have adopted the moniker "a wires company". These utilities have tried to divest all generation assets and are just in the business of transporting electricity, delivering it and handling the billing. Don't take that to mean they are not in the game, renewable energy needs lots and lots of wire to make it work. What it does is eliminate the risk of a stranded asset if the subsidy rules change mid game.

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author

Thank you sir!

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I assume AEP is spending lots of capital on building out more "wires" (transmission lines) and making a nice profit on it?

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Well let's just say "delivery" is about 2/3 of my bill. I don't get my energy from AEP, I get it from Energy Harbor, a 100% nuclear energy supplier.

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Mar 9Liked by Isaac Orr, Mitch Rolling

Standard Oil had nothing on the IOU rent-seeking from the 'energy transition.' With a solar capacity factor of under 5% in December, Xcel must mean MN is one of the 'best' regions for extracting profits from ratepayers while delivering nothing in return.

Aside from the cost, the decline in power quality from harmonics, frequency, and voltage fluctuations caused by renewables impose further inflationary costs on ratepayers from equipment disruptions, and these generally are not tracked by utilities because they do not exceed 3 - 5 minutes. The latest Decouple podcast goes in depth on this often-overlooked issue - https://www.youtube.com/watch?v=xrWBLtna_yw&ab_channel=DecoupleMedia

EIA data below. Despite the billions spent, wind is a minimal contributor to MN electricity generation. Wind is better, but doesn't show up in the summer.

https://imgur.com/a/AFiyN1B

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Mar 10Liked by Isaac Orr, Mitch Rolling

This is a fantastic article and sheds light on the fact that utility companies could honestly care less about “green energy” and are in it for the money. It also feels like utility companies are becoming what seems like a pseudo third arm of big tech because as the article states, utilities will never bring in the profits that big tech does on their own. So, they are incorporating all the “green energy” technology into their operations that they can by either partnering with contractors to build it and/or connect to it.

All this is, is utility companies profiting from billions in tax credits and government subsidies that are driving this green energy nonsense; the companies couldn’t care less about the environment. When the money runs out for all of this — which it will, because people are figuring out that “green” isn’t green at all and/or they become tired of rolling blackouts due to growing grid instabilities — they will push back on this. Then, the utility companies who rushed to jump on this bandwagon will be left holding the bags.

One day, the “energy transition” will be looked upon as the greatest scam in the history of energy.

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author

Totally agree. The utilities are flying ever closer to the sun

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Mar 9Liked by Isaac Orr

Here are a few other things worth looking at:

The value of economic dispatch. A report to Congress pursuant to section 1234 of the energy policy act of 2005.

Prepared by United States Department of Energy. November 7, 2005

https://www.energy.gov/sites/default/files/oeprod/DocumentsandMedia/value.pdf

Negative Electricity Prices

and the Production Tax Credit

Why wind producers can pay us to take their power – and why that is a bad thing

By Frank Huntowski, Aaron Patterson, and Michael Schnitzer

The NorthBridge Group. 9/10/2012

https://graphics8.nytimes.com/news/business/exelon.pdf

Understanding the Interaction between Regional Electricity Markets and State Policies. Nicholas Institute for Environmental Policy Solutions

https://www.betterenergy.org/wp-content/uploads/2018/02/GPI_Electricity_Markets_Primer_2017.pdf

or

https://nicholasinstitute.duke.edu/sites/default/files/publications/ni_primer_17_01_0.pdf

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author

Awesome! Thanks, John!

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Question: do you think this sort of incentive also drives a co-op model? For example, this is my utility company:

"The cooperative business model is unique. As the only electric cooperative in Delaware, we give excess revenue back to our consumer members. Our leaders are members and so are many of our employees. We’re also part of a national network of hundreds of energy cooperatives that help each other during major storms and work together to develop innovative solutions to challenging problems."

We intentionally bought a house in DEC's service area because their electricity is significantly cheaper than the IOU Delmarva Power. (The IOU is appropriate given their rates.) But DEC is also "investing" in solar panels all over what is decent farmland in the area to, among other things, meet state mandates.

I suppose the only good thing is that we will eventually get back a share of their profits (since it is a co-op) as a bill credit in about five years, and annually thereafter.

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I worked for a municipal for 26 years. Co-ops fall into a broader group known as public power. Check APPA to learn a little more. Public power generally tries to keep rates as low as possible, but there is a ton of upward pressure out there. Public power has to meet the same green energy content requirements as IOUs. That just drives up prices.

https://www.publicpower.org/

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Interesting question. In Washington State, they have PUDs (Public Utility Districts). I'm not sure if they're building wind and solar in those districts, and/or making a profit, and sharing it, but I'd like to know...

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author

I don’t have a better answer than Kilovar. Thanks for reading, Al.

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I know those utilities, Chelan County PUD is well known in the energy markets. As a public agency they cannot make a profit. That doesn't mean excess funds cannot be returned to the county to enhance the county budget. Read into that whatever you want. Typically public power gets into mind because the public wants it, and the State makes laws forcing it. You can build it cheaper than buy it on the market if the law says you have to have it.

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I love auto correct

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author

From my experience coops generally try their best to keep rates low for their members. That generally means being late adopters to risky new tech and using assets as long as possible

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We will start with two quotes that summarize this article perfectly-shout out to Energy Bad Boys for killing it again-"Show me the incentives, and I'll show you the outcome.” R.I.P Charlie Munger, “on wind energy, we get a tax credit… That's the only reason to build them. They don't make sense without the tax credit.” Warren Buffett. Combining these quotes we get "their paying me to building so I'm going to build it" quote mine. The current-put intend-set up was given to us by Samuel Insull. Insull began promoting the most audacious idea of his career: the regulated monopoly. He argued that municipalities lacked the technical expertise and business acumen to effectively run these complex utilities. For the private sector, he argued that competing power companies would inevitably build their own power lines and power plants. He said these overlapping investments were unnecessary and only led to higher prices for customers. His central argument was that electricity infrastructure was a “natural monopoly." And so the partnership between government and industry was born. There is a lot more to it but that's outside the scope of this note. The bottom line is an investor got the idea to blend government and business together to protect profits and capital.

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Brings to mind the famous Charlie Munger quote: "show me the incentive, and I'll show you the outcome." Well done.

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Mar 10Liked by Isaac Orr

Most renewables projects, especially pre-IRA, signed Power Purchase Agreements (PPA) with utilities. My understanding is that PPAs are pass-through costs to ratepayers and not added to the utilities’ capital base on which they earn their returns. The exception would be where utilities choose to (and are allowed to) own the assets themselves, which is more of a post-IRA trend. Am I missing something or can you explain how this affects your logic?

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author

Can't speak for all companies, but the ones listed here own a significant portion/majority of their renewable projects. Xcel, for example, has been pushing for more company ownership years before the IRA, suggesting it was important to own them because "investors support companies that grow their earnings power." This was stated in the company's 2019 IRP under Appendix E: Aspirations for a Carbon-free Energy Future. It's not a secret that utility companies are doing this.

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Mar 11Liked by Isaac Orr, Mitch Rolling

Right, that makes sense. I’m just curious how representative the list is and how it’s changing over time and by geography. Based on RFPs I’ve seen recently, this trend will accelerate with the IRA, given the changes in tax credit monetization rules. But my understanding is that some markets do not allow for utilities to own the generation assets. So this analysis would be less relevant in those markets, right?

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author

Also the sources we cite talk about a 15 percent increase across the board so that’s pretty representative

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Some states don’t allow utilities to own generation and some states within more competitive RTOs like PJM have vertically integrated utilities. This includes WV and VA.

We specifically noted our analysis was about vertically integrated investor owned utilities at the beginning of the piece so I think we did a good job of scoping the analysis

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Agreed, I just think it would be helpful to have a more comprehensive map view of which utilities are vertically integrated / own meaningful amounts of generation. It would help me to better fit your analysis into my knowledge of the system.

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author

A lot of the projects were ppas in the 2000s but utilities have been successfully pushing to own the generation since the 2010s

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I’d be interested to see more data on that, if you have on a MW or, even better, on a 2024$ basis over time and by ISO/BAA.

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Absolutly fantastic article, and I am really looking forward to our podcast recording! - Stu

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As Charlie Munger said, "Show me the incentives, and I'll show you the outcome."

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author

Exactly

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Mar 9Liked by Isaac Orr

“Once a power plant is paid off entirely, the utility no longer makes any profit from the facility.” This is a patently false statement. If the asset still earns revenue, profit continues. Depreciation is only one component of overall profit.

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Hi Dr R,

Plants can still earn revenues but those are passed through to the consumer and the utility will not earn a profit

“This mode of utility regulation perversely causes a utility to be hostile to assets that are still productive, yet fully depreciated per the company’s books. This hostility to depreciated assets emerges because, when a utility’s capital investment is returned to it through regulated rates, it earns nothing on an asset’s continued productivity”

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Mar 9Liked by Isaac Orr

I stand corrected. Thanks for the reply.

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author

Thanks for being a subscriber 😊

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Mar 9Liked by Isaac Orr

Great insights as usual - thank you Bad Boys! -

My question is - is electricity a service or a commodity?

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author

The capacity on the system to serve you when you want it is a service, and the energy provided to you at any given moment is a commodity.

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Mar 9Liked by Isaac Orr

In CA generation and transmission are completely bifurcated. Utilities must bid their generation into the “competitive” market, but T&D remains in the authorized return on investment system, which makes the utilities fully supportive of renewables because they add rate base investment in grid upgrades. More profit.

The truly scary thing to me is that there is no opposition to unlimited grid expansion. There used to be several entities inside the PUC and non profits that looked at every penny the utilities tried to add to the rate base and showed up to advocate for the ratepayers. They are still around, but now they advocate for renewables… no matter what the cost to ratepayers.

This is how the on peak residential rate in San Diego got to be 65 cents per kWh. The other CA utilities aren’t far behind, and they both have huge rate increases in the works. Win -Win! Expect the same in NY, MA, and the other states mentioned here.

That said….Never forget -WIND IS CHEAPER

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author

Exactly. All the of “ratepayer protection” groups all care more about renewables than ratepayers. Groups like the Energy Foundation and McKnight Foundation have become huge sources of funding for those groups so they only look to minimize costs after accepting the premise that we need more wind and solar.

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Earth is cooler w atmos/WV/30% albedo not warmer.

Ubiquitous GHE heat balance graphics don't + violate LoT.

Kinetic heat transfer processes of contiguous atmos molecules render “extra” energy of a surface BB impossible.

GHE & CAGW climate “science” are indefensible rubbish so alarmists must resort to fear mongering, lies, lawsuits, censorship and violence.

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