I guess that we’re done with this. But listen: you go to a bank and ask them to finance a coal plant without ratepayer guarantees. Ask your shareholders to. And let me know how that works out.

Because your argument (“it’s not market forces”) is good, except that it crucially depends on ignoring the market. And your argument about the industry (“monopoly distributors need to build generation to serve the territory”) is good, except that it crucially depends on ignoring the industry.

For example, IPPs that opt not to enter into long-term contracts could easily prefer solar plants. They can sell power cheap when they have it, and people will always be willing to buy because coal and natural gas plants cost money to fuel. I can imagine a market where the only profitable IPP technology is solar, since fuel is free. Yet clearly distributors can’t invest in solar because they have to provide power even when the sun isn’t shining. IPPs don’t unless they choose to.

The “must provide power even at a loss” provision puts the distributors in a completely different game from the one IPPs are in. They will invest in the most reliable technologies, even if they cost more per Kwh.

But you are right, of course, allowing distributors to finance power production does distort the market. It’s simple to fix — make distributors only distribute power. Their distribution business should not buy or sell power except as an intermediary, they should not need contracts or generation facilities.

However, so long as they are required to provide power, even at a loss, it makes no sense to say they should not be financing power plants. Part of what an end-user gets from a distributor in the current system is a guarantee that power will be available. That is part of what end users pay for, and it is logical to use their money to ensure that power can be provided.

Remove the requirement that distributors ever provide power at a loss and I’ll be 100% on your side. You can still create separate entities required to provide power at a loss if you want.

David Schwartz: It makes no sense to say “you must provide power, but you cannot build power plants”.

Nobody has said this. There is a difference between:
1) Providing power on a balance sheet supported by a ratepayer-guaranteed rate of return to equity and debt;
2) Providing power on a balance sheet not supported by ratepayer guarantees.

And the following simply does not describe the US energy market:
It makes no sense to say “you must provide power, but you cannot build power plants”. If you do, the IPPs will skim the cream and leave the distributors no way to buy the power they are required to provide.

There are a multitude of ways in which distributors may purchase power, especially in an RTO. Subsidizing the financing of coal plants by government-backed monopolies is simply one; and clearly the most anti-market when the technology selected is one rejected by the IPP market.

It makes no sense to say “you must provide power, but you cannot build power plants”. If you do, the IPPs will skim the cream and leave the distributors no way to buy the power they are required to provide.

David Schwartz: So long as distribution companies are *required* to provide power, even at a loss, I would have a hard time supporting anything that prevented them from using the money they get for providing power to reduce the risks that they will be required to provide power at a loss — even if that means building coal plants.

I disagree with this reasoning, based upon what are widely recognized as a stronger application of market principles, but no matter.

The clear point here is that your approach advocates bureaucrats picking a technology – coal – rejected in the IPP marketplace, and then financing it through the grant of a government monopoly.

The next time you make a point about picking and choosing and financing power plant technologies rejected by the marketplace, please keep this in mind.

A better solution would be to make distribution companies only distribute. Give them a monopoly territory, but just let them tack on a distribution fee for the power they distribute. Then there would be no reason to permit them to bundle anything but the costs of distribution and maintaining distribution into their charges.

David Schwartz: Are distribution companies *required* to provide power or are they only required to distribute it if it is available for less than they can charge for it? That’s what it comes down to.

In return for the grant of a government monopoly, and a guaranteed rate of return on distribution assets, a distribution company is assumes the risk of serving the monopoly territory. That is the deal.

There are several ways in which distribution companies may mitigate or disperse this risk. As I mentioned before, it may transfer this risk via long-term power purchase agreements to generators or power marketers; if buying on the open market, it may transfer price risk to financial institutions via hedging arrangements (as sellers do on routine basis).

Typically, customers do not bear the risk of price increase between periodic planning periods. (e.g. not without an “integrated resource planning” ratemaking proceeding.) It is generally agreed that it makes little sense to deprive customers of competitive suppliers, and also force them to bear the risk of price change. Think about it.

That being said, the California energy market was a somewhat strange situation in which there was massive wholesale market manipulation, and distribution utilities could not sign higher-priced longer term PPAs in order to mitigate short-term price risk, or enter into similar arrangements.

As I explained earlier, this has little to do with the fact that coal plants are picked and chosen by bureaucrats, and financed by guarantees issued by the ratepayers trapped within a government-issued service monopoly. This directly displaces a long-term power purchase agreement with an IPP (or power marketer), who most likely prefers to build a natural gas or wind farm.

If a distribution company only “passes along” power and adds a fee, then I would completely agree with you — they should not be allowed to use their legally-granted monopoly to subsidize a power-production business. However, to the extent that they are ever required to provide power at a loss, they must be permitted to invest in hedging and pass along those costs, whether that means building coal plants or entering into long-term contracts.

David Schwartz: I’m not convinced that these disparities aren’t due to the fact that the transmission companies can be forced to sell power at a loss. That’s what I’d have to believe to agree with you.

Maybe this is the crux of the misunderstanding. “Transmission” companies (by which I think you mean “distribution” companies, right?) are responsible for distributing power to the entire service area. The types of assets here are the low-kv disribution lines, neighborhood transformers, etc.

(As a matter of history: these monopolies were granted because it is generally not profitable to distribute power to rural areas with few people.)

The generation of power is a separate function. A distribution company which doesn’t hold generation assets (e.g. when California forced distribution utilities to divest themselves of generation assets) isn’t earning a rate of return on generation assets. It does, however, pass through the cost of obtaining power. The PUC typically divides these costs among various types of consumers (e.g. industrial/commercial/residential.)

If I read you correctly, your objection is to the actions of the California PUC, during the 2000-era electricity crisis, which refused to raise customer rates to cover the costs of obtaining power, sending distribution utilities careening towards bankruptcy.

In return for the grant of a distribution service monopoly, a utility takes on the risk of serving that territory. California, in effect, refused to allow the utilities to transfer that risk to another party: not to power providers (or power marketers) through long-term power purchase agreements, not to financial intermediaries through hedging transactions, not to customers through rate increases.

This is silly. (I believe that california utilities now enter into long-term PPA, own their own generation assets, and – I would expect, but do not know – are permitted to enter into long-term hedging transactions).

It is also tangential to the issue here: over half of the country is located in an RTO with wholesale transactions – i.e. we have moved away from the monopoly model. Financial institutions routinely take on the risk of price shift, and millions of people are reliably served through wholesale transactions.

It overwhelming the outdated, non-market, cost-of-service rate-making model that continues to construct coal plants today. It is *this* model that people must consider, when discussing public financing and technology-picking.

I’m not convinced that these disparities aren’t due to the fact that the transmission companies can be forced to sell power at a loss. That’s what I’d have to believe to agree with you. (And it may be that it’s 100% true. I admit that I don’t have enough information to render a useful judgment. But that’s why I can’t sign onto yours.)

David Schwartz:
It’s a close question and one I’m not really qualified to answer.I think if the customers were free to enter into the long-term contracts and the monopolies free to float the customers’ rates (or shut off their power if the spot rate exceeded the customer’s desire to pay) then I would definitely say they should not be allowed to finance powerplants through their service monopoly.On the other hand, were the transmission providers prohibited from entering into long-term contracts and required to guarantee rates to customers below the spot rate and prohibited from turning off service if electricity got too expensive, they they definitely should be allowed to.The real situation is complex and to the extent that I understand it (and frankly, I keep confusing California’s old rules with the current ones and with the Federal ones), it’s somewhere between these two extremes. So it’s in the area I consider to be somewhat gray.

For any particular jurisdiction, the rules relevant here are not gray; and overall, some fairly straight-forward claims can be made.

In particular, a distribution utility under the kind of ratemaking described here (i.e. utilities that earn a return on equity (e.g. 10-12%) on capital investments included its “rate base” – including power plants – apply for permission from the public utilities commission. (Typically, this permission is called something like a “certificate of necessity and convenience.”) A CNC showing will typically require evidence both as to the utility’s anticipated demand, and ways in which that demand can be met – either by construction of a powerplant, or by purchase of energy from another source.

So, to the extent that these kinds of regulations are relevant here, the principle – how to meet a duty of service and earn a guaranteed rate of return on equity – is fairly straightforward, not gray.

Also not gray: IPPs typically do not construct many coal plants. Natural gas and wind is preferred. Large, capital-intensive coal plants are typically financed by inclusion in the monopoly rate base, upon which monopoly utilities are guaranteed a 10-12% rate of return on equity.

So, for all the hand-waving about government interference and picking/choosing technologies, let’s talk about what is happening here: government is financing, through grants of monopoly power, large coal projects typically rejected in the IPP market, by picking such technologies in regulatory proceedings.

Nobody At All:
(I could have written my last comment a bit shorter, for which I apologize.)Given that distribution monopolies may protect themselves from wholesale energy price increases by entering into long-term power purchase agreements, or by enter into long-term hedging transactions for purchases on the wholesale market (quite common for sellers, at least), then by this reasoning they should not be allowed to finance powerplants through their service monopoly, no?

It’s a close question and one I’m not really qualified to answer.

I think if the customers were free to enter into the long-term contracts and the monopolies free to float the customers’ rates (or shut off their power if the spot rate exceeded the customer’s desire to pay) then I would definitely say they should not be allowed to finance powerplants through their service monopoly.

On the other hand, were the transmission providers prohibited from entering into long-term contracts and required to guarantee rates to customers below the spot rate and prohibited from turning off service if electricity got too expensive, they they definitely should be allowed to.

The real situation is complex and to the extent that I understand it (and frankly, I keep confusing California’s old rules with the current ones and with the Federal ones), it’s somewhere between these two extremes. So it’s in the area I consider to be somewhat gray.

David Schwartz: If your local monopoly power “last mile” provider were never required to sell you electricity at a loss, but could float your rates based on spot rates or let you buy long-term contracts from them or others at your option, then yes, I would oppose allowing utilities to put anything in the ratebase for their legally-granted monopoly other than the costs of providing and maintaining the “last mile” service.

(I could have written my last comment a bit shorter, for which I apologize.)

Given that distribution monopolies may protect themselves from wholesale energy price increases by entering into long-term power purchase agreements, or by enter into long-term hedging transactions for purchases on the wholesale market (quite common for sellers, at least), then by this reasoning they should not be allowed to finance powerplants through their service monopoly, no?

David Schwartz:
In principle, yes I am. But in this system, I don’t think you can make that work. That’s because the same companies that are granted a monopoly service area are also required to provide power, under some circumstances, at a loss. In order to fund that guarantee and keep it from bankrupting them, they may have no choice but to leverage their monopoly to finance power plants.In a completely free market, they would be able to turn off your power if they couldn’t acquire power at a price you were willing to pay. But due to the natural monopoly on the “last mile” and the fact that we live in a world that is in many ways distorted from a completely free market (for better or for worse) rules from that fantasy world don’t always work correctly in this one.If your local monopoly power “last mile” provider were never required to sell you electricity at a loss, but could float your rates based on spot rates or let you buy long-term contracts from them or others at your option, then yes, I would oppose allowing utilities to put anything in the ratebase for their legally-granted monopoly other than the costs of providing and maintaining the “last mile” service. I think fully separating the “natural monopoly” parts of utilities from everything else is a good way to deal with natural monopolies, even if it does force some diseconomies.

This analysis applies to completely vertically-integrated markets. That is, not the U.S.A.

Ever since 1996, transmission has been open-access. Some markets – notably, almost the entire Eastern Interconnection, the CAISO service territory (California), and ERCOT (Texas) – have separated generation, transmission, and distribution functions; have implemented wholesale electricity markets that independent power producers sell into; encourage transmission investments by merchant companies; a few (a few places in Texas) have retail competition.

Even in the Western Interconnection, IPPs develop a great amount of today’s power. (The overwhelming majority of these plants are natural gas and wind farms.) Local distribution utilities (granted a service monopoly, with a duty of of service and a rate of return guaranteed by the ratepayers trapped within the monopoly territory) either sign long-term power purchase agreements with independent power producers, or – where there is a wholesale market – purchase power directly off the market or through a power marketer.

All of which is to say: there is a thriving private industry of independent power producers, and when a powerplant is financed through ratepayer-supported guarantees, it directly crowds out this market.

This public subsidy of ratepayer-financed generation is absolutely enormous, and unnecessary.

Nobody At All:
Are you for disallowing power plant costs to be placed in the ratebase of a utility’s (monopoly) service area? This would level the playing field quite a bit, I think.

In principle, yes I am. But in this system, I don’t think you can make that work. That’s because the same companies that are granted a monopoly service area are also required to provide power, under some circumstances, at a loss. In order to fund that guarantee and keep it from bankrupting them, they may have no choice but to leverage their monopoly to finance power plants.

In a completely free market, they would be able to turn off your power if they couldn’t acquire power at a price you were willing to pay. But due to the natural monopoly on the “last mile” and the fact that we live in a world that is in many ways distorted from a completely free market (for better or for worse) rules from that fantasy world don’t always work correctly in this one.

If your local monopoly power “last mile” provider were never required to sell you electricity at a loss, but could float your rates based on spot rates or let you buy long-term contracts from them or others at your option, then yes, I would oppose allowing utilities to put anything in the ratebase for their legally-granted monopoly other than the costs of providing and maintaining the “last mile” service. I think fully separating the “natural monopoly” parts of utilities from everything else is a good way to deal with natural monopolies, even if it does force some diseconomies.

David Schwartz: I’m all for getting government out of the way.

Are you for disallowing power plant costs to be placed in the ratebase of a utility’s (monopoly) service area? This would level the playing field quite a bit, I think.

orca:
Nope, Even ignoring Climate Change, billions of humans have a desire to live their lives more energy efficenty for financial reasons, health reasons and freedom from religious fanatics of all confessions reasons. A desire German and Chinese workers are going supply them the means to satisfy.

Sure, but if you do that too early, you’ll wind up pouring an awful lot of money down a rathole. Think about all the money invested in electric cars before the basic battery and motor technologies were ready. If you pick a technology too soon, you may pick the wrong one and wind up with billions invested in a hydrogen infrastructure just as something much better comes down the pike.

So in order to act rationally on this desire, we have to know how urgent it is. Rushing it will lead to highest costs and inferior solutions.

Just in the area of nuclear, the best designs are changing fundamentally every few years.

I’m all for getting government out of the way. For example, large solar facilities have to go through ridiculous levels of emissions certification when they effectively have no emissions. But dumping money requires picking winners and losers. That’s even hard for the market to do if even the best plans won’t make an actual profit. The market will distort to finding the plans that can best attract government funding.

Skyler: You ignore all the evidence of fraud and just keep repeating that it’s not fraud.

You mispelled “allegations“. Which a couple of panels have looked at now, and dismissed as lacking any substance.

You, OTOH, ignore the data (and that’s all the data, not just the tree rings you’re allergic to).

Now that’s avoiding any acquaintance with reality.

Cheers,

You’re like the pet shop owner in the Monty Python skit. Despite all the evidence, you just keep denying the parrot is dead.

Skyler: Everything that has been done about climate for the past 30 years is now nulled. [...] They need to go back to the beginning and create a whole new body of literature and analysis that gives a very skeptical view of any data collected within the past thirty years.

Just like they need to start the health care debate all over from scratch …. ought to last at least until November….

Well, that settles it.

Thread winner #2.

Cheers,

Orson Buggeigh: Note to Zuch and Orca and other defenders of the AGW perspective:
1. Mann has’t really been cleared of anything except bad academic conduct.

Nope. In fact, he was cleared of three of the four synthesized allegations, the three having to do with fraud, hiding or destroying data (allegation 1), destroying e-mails (allegation 2), and misuse of confidential or privileged information (allegation 3). The one remaining allegation (which will be investigated) seems to be the one about “bad academic conduct” (i.e., was he impolite to the anti-AGW people). As for the science, the NRC panel gave him a thumbs-up on that.

Orson Buggeigh: It would be much more interesting to see someone charge Mann and others for violations of FOIA.

On what basis?!?!? FWIW, the PSU report cleared him of the allegations of e-mail destruction.

You sound like you’d like a witch-hunt; prosecute him for sumptin’or’other because you don’t like what he says….

Orson Buggeigh: … there is no reason those of us who do not share Mr. Gore’s views should agree to impovrish ourselves to enrich him and Dr. Mann.

Objection! Assumes facts not in evidence!

Orson Buggeigh: If their proposals actually made any business sense, people would not have to be forced to move in that direction, there would be an existing demand.

What’s good for some people isn’t necessarily good for energy companies. Unenlightened self-interest still persists in capitalism.

Orson Buggeigh: 3. To the “Would YOU want to release your e-mails?” crowd: We are talking about public documents. The public has paid for this research, and they should have every right to see what they are getting for their money.

Were you saying this when the Dubya maladministration was stonewalling all FOIA requests (and Congressional requests) for e-mails?

But FWIW, Mann turned over all his e-mails (and even those that mention him or his work) to the PSU committee, and they were all reviewed as part of the investigation.

Cheers,

You can’t seek the refuge of the liars to prove that they aren’t lying.

If they wanted to ever have an honest conversation, they blew it.

Can’t trust them. Can’t trust anyone trying to defend liars.

By defending these liars, you are either gullible, which seems unlikely, or you are untrustworthy yourself.

Climatologists, the proven frauds, need to purge their ranks, and start from zero in attempting to understand the climate. Everything that has been done about climate for the past 30 years is now nulled.

Can’t be salvaged without a complete overhaul. It is pointless to persist in defending it. They need to go back to the beginning and create a whole new body of literature and analysis that gives a very skeptical view of any data collected within the past thirty years.

No other method can restore trust.

Skyler: An investigation by biased colleagues has claimed to partially exonerate ONE of the frauds, not all of them.

They’re “frauds” because you don’t like what they say. Their peers are “biased” because … once again … you don’t like what they say. Bet you don’t have many friends (and any potential candidates are the better for it, I’m sure).

Cheers,

Skyler: The data can’t be trusted. Examination of untrustworthy data is a useless endeavor.

This is an excellent summary of your position. Thank you.

By failing to examine any contrary data, one can conclude almost anything. But it fails to be accurate, or persuasive.

Skyler: Explain how anyone can claim with a straight face how we can decide on a “global” average temperature?

Oh, no one’s “decid[ing]” it. They’re calculating it (or an estimate thereof). And the data and methods for doing so are available. That’s science.

Cheers,

Skyler: The theories are bogus because they are made based on data that can’t be trusted and by people that have proven to be frauds, or controlled by frauds.

Translated from Denialist into English: “The theories are bogus because they say something that I don’t want to hear.”

Followed by: “Those that say such things must be frauds because I don’t want to believe them.”

Cheers,

Skyler: I’ll trust the common sense notion that you can’t measure a “global” temperature within an accuracy of tenths of a degree when the raw data can only be accurate within 2 to 3 degrees at the best of times and when the measurement stations are moved, changed, and fabricated.

If this is “common sense”, it’s wrong.

Skyler: Correlating ancient temperatures with modern measurements using different standards is an invalid hypothesis, especially when the results are not consistent. 

That’s not how it’s done. Validation of proxies can be done, so that proxies from earlier years can be trusted to some extent. That is how it was done.

Skyler: The whole mess is based on lies, and this is no longer debatable.

That is not what the reviews that looked into the matter found. In fact, they found the opposite, so perhaps it’s time for you to re-evaluate your “conclusions”.

Cheers,

An investigation by biased colleagues has claimed to partially exonerate ONE of the frauds, not all of them.

The theories are bogus because they are made based on data that can’t be trusted and by people that have proven to be frauds, or controlled by frauds.

Explain how anyone can claim with a straight face how we can decide on a “global” average temperature? Now add in that the measurements are taken from arbitrary locations and do not cover most parts of the world. These locations are haphazardly maintained. These stations can only measure to an accuracy of 2-3 degrees for a specific time. Then extrapolate these measurements to cover an entire year and get a result within a tenth of a degree.

I didn’t fall off of a turnip truck.

Now, include into this mess the idea that they can determine temperatures from ancient times by measuring even scarcer points of time that cover even less of the Earth. And yet still they extrapolate to get a measurement within a tenth of a degree.

They think we’re stupid.

We’re not taking it anymore. Even if people were silenced and intimidated to not object in the past, we’re not going to be silent anymore. PROVEN FRAUD.

Just take your AGW theories and put them with the fountain of youth, the perpetual motion machine, the trial by ordeal, and all the other hooey of witchcraft, and get out of here. We’re not taking it anymore.

They lied. They were caught. They should be jailed.

Skyler: Yes, open minds are good. I wish the AGW jihadists would be open minded and admit that fraud has been committed ….

… when an investigation just cleared them of this. Yep, that’s keeping an “open” mind … one of .0003 Torr.

Cheers,