My eyes rolled so far back in my head this morning that it's taken half a day to regain their function.  It happened as a result of reading this article in the popular periodical, Institutional Investor.  Now, I'm not sure who actually reads this, but any readers should be aware that not only is the article full of energy fallacies that would make a junior high school science student laugh, but there is no "investment opportunity" for pensions and large companies to be found in electric transmission.  When the rubber of this grandiose brain fart hits the road of reality, it's going to be a giant blow out!

I gotta wonder, do these investors actually drop cash into investment schemes they know nothing about, advised by a couple of yahoos who know nothing about how electric transmission is actually paid for?  Aaron Bloom and Richard Wiggins should be laughed right outta the room for suggesting that non-utility corporations can invest in electric transmission and earn a GUARANTEED 9-11% return on their investment from ratepayers.

NO!

Their understanding of the financial side of transmission is probably being laughed at in utility and regulatory circles.  I hope they're suitably embarrassed for this faux pas.  It's sort of like someone who has never had a child telling someone who has many children how to be a parent.  Aaron and Richard have no idea what they're talking about!!  Their article rings nearly every single bell in this dire warning about fraudulent investment schemes!  Maybe Aaron should spend less time trying to act like P.T. Barnum's long-lost grandson and more time being a humble student at NextEra's transmission rates department?  Then he could actually know his subject matter before he opens his mouth on the investment sideshow circuit.  Obviously Aaron is not the smartest guy in the room, no matter how much he may think so.

I'm going to split this into two parts, the rates/investment lies part, and the energy lies part.  Let's do the rates thing first, because it just bugs me so much!  Aaron (maybe with the help of Richard?) has completely scrambled two very different ways to pay for new electric transmission into one too good to be true investment "opportunity." 

Just last week, I blogged about politician, bureaucrat and media confusion over the distinctly different traditional, utility-owned transmission project vs. the more recent merchant transmission construct.  I'm guessing Aaron and Richard didn't read it.  If they had, they never would have made such a colossal mistake.  At least we should hope not, since trying to sell this "investment" if they knew it was fraudulent is... well... fraud!

Only regulated utilities can build and own regulated electric transmission (referred to as the "traditional" kind in my recent blog).  Amazon could not decide to build a transmission project and receive a return from electric ratepayers.  That's not how the regulatory compact works.  (Aaron needs to drop into NextEra's legal department, too, on his way back to the huckster department.)  Regulated utilities do not need "investments" from Amazon to build transmission ordered by grid planners (not the federal government).  Regulated utilities invest THEIR OWN money in transmission projects... and that's why they are allowed a regulated 9-11% return.  The regulatory compact balances low rates for ratepayers with a return that is just enough to keep the utility financially healthy.  There's nothing in there about corporations who are not regulated utilities.  Ratepayers are not money fountains for private corporations.  Utilities are for the purpose of serving the public.  Amazon is not.  Furthermore, utilities would never allow a company like Amazon to invest in their projects and collect the entire return.  The utility wants (needs?) that return to keep its own company healthy.  There's nothing in it for a utility to pass on all its profits to Amazon.  Let's really stretch Aaron's brain here, shall we?  A utility's equity in a transmission project is usually in the neighborhood of 40-60%.  It only earns a return on its equity.  The remainder of the project is financed with debt.  And that's not debt from Amazon.  It might be a bank, who gives really good rates to utilities - maybe 6% or less, based on the utility's credit rating and guaranteed regulated revenue stream.  However, debt is paid back to the bank by ratepayers at the utility's borrowing rate, not its equity rate (6%, not 9-11%).  There is no regulated profit for the utility there.  In addition, the "turning over operational control" of new transmission to regional transmission organization is purely figurative.  RTOs don't own transmission.  It's not like a utility could build transmission and then give it to PJM and wash its hands of the responsibility while collecting its juicy ratepayer return.  Saying something like that just demonstrates a complete lack of knowledge about transmission... or pushing a conniving and fraudulent investment scheme.

The only investment space for companies like Amazon in the electric transmission world is merchant transmission.  Non-utilities can propose, build and own whatever they want in the non-regulated world of merchant transmission.  Go for it, Jeff Bezos!  However, merchant transmission is not regulated.  This means there is no revenue stream from captive ratepayers.  This means there are no guaranteed returns.  This is a deregulated transmission project market.  There’s actual competition there so merchant transmission developers like Clean Line Energy Partners, can — and do — go bankrupt and their investors can (and did!) lose everything.  Merchant transmission can only recover its costs through negotiated rates in a free market.  Merchant transmission must have voluntary customers to be financially viable.  There are no captive ratepayers.  The allowed return is the difference between the cost of service and the rate that can be voluntarily negotiated.  It is not guaranteed.  Nothing about merchant transmission is guaranteed by anyone.  It's a risky business, but if Amazon wants to dabble in it nobody is going to stop them.  But Amazon has to accept the full risk of losing its investment in its entirety.  Is that a good investment for pensions and corporations?  No, it's not.

Biden did not "unlock investment in the grid."  The only thing that is actually operational is some transmission loan guarantees from DOE.  That does not mean that Amazon can invest in the new merchant transmission Clean Line, called Grid United, and recover all its investment from the federal government when Grid United fails.  Merchant transmission assumes all risk.  If the federal government is taking on the risk, then it's no longer a merchant project and we're back to square one with the regulated utilities that aren't interested in Amazon's money.

Bottom line:  There is no "private investment" in regulated transmission.  There is no opportunity for companies like Amazon here.  Trying to sell it as a high yield, no risk investment opportunity would make P.T. Barnum blush.

Now, let's move on to the energy lies...

1. Environmentalists are not winning.  They're losing.  Probably because of lies like this.
2. We don't need ONE unified electric grid.  The bigger it gets, the more connections it makes, the bigger its chances of failure.  Cascading outages are a real risk when everything is connected.
3. California and Texas can't keep their lights on in a crisis because they don't have enough reliable baseload generation that can run when called.  Renewables are variable resources that must be backed up with adequate baseload.  Build too many subsidized renewables and baseload is forced out of market and closes.  When your baseload closes, it is not incumbent upon other states or regions to sell you their electricity because you didn't plan your system properly.  If California and Texas planned and built for their own needs, instead of planning to be a power parasite, they would be able to keep their lights on. 
4. Remote renewables are NOT "distributed" generation.  They are the same centralized generation + transmission model criticized in the article.
5. Fifteen states DO NOT account for 87 percent of U.S. wind energy potential, most geographically far from the urban load centers where most of the country’s energy is consumed.  The article leaves out offshore wind, which has much more potential and is conveniently located nearly all of the major urban electric load.  Turning the Midwest into "the Saudi Arabia of wind" while keeping your own sea views pristine is just another parasitic move.
6. If Wyoming wants to tax wind power, bravo!  There's nothing bad about that.  It's good for Wyoming.  Why should Wyoming become the parasites' power plant for free?
7. The physics of distributed generation do work!
8. Wires are not cheaper than batteries in all instances.  Consideration must also be given to who pays.
9. It's only "cheaper" to build renewables because they are so heavily subsidized by taxpayers.  The real problem is that transmission is not an asset that can or should be subsidized. 
10. The U.S. transmission grid is not inadequate.  It is not congested and old.  It is a carefully balanced high-tech machine that is constantly updated and it keeps the lights on, even when the wind doesn't blow.  (Had to add that... hope it hit the spot!)
11. You can't pump any more electrons on to certain places in the grid because they don't need power there!  Building generation in remote places where no one needs it and then demanding that those folks pay to build you a road to get your product to market defeats any cost savings from building the generator there in the first place.  How about concentrating on building generation near load and saving us all a lot of money and headaches? 
12. We don't need to double or triple the size of the electric grid.  We simply can't afford it.  Electric bills are high enough for most people, without doubling or tripling them.  (Investment opportunity!!!  Who is supposed to be paying for this?  There ain't no such thing as a free lunch!)
13. The grid is not collapsing.  People may find it boring, but that's because it's serving its purpose and nobody has to think much about it.  However, if you triple electric bills, make the grid unreliable, and put huge lattice transmission towers across working farmland and in everyone's backyard I guarantee you that nobody would find it boring anymore.  They'd be talking about it constantly... and they'd be coming for your head with torches and pitchforks.
14. The sun shines brightest and the wind blows hardest?  WTF?  Do you know how juvenile this crap sounds?  How condescending of you!  You glib little shit.
    
15. The overhead grid on huge towers is an old idea that requires sacrifice from landowners who receive no benefit.  We don't have to build transmission this way anymore.  It can be buried on existing rights of way, like railroads or roadways, and no one would have to sacrifice.  In fact, transmission like that would probably face little to no opposition and sail through regulatory proceedings.  Why aren't we building that?  Why are we stuck in the past continuing to build new versions of Nikola Tesla's grid?
    
16. Nobody cares how many jobs you create building stuff we don't need.  Maybe we should just pay these people to sit on the couch and call it a "job."  Oh wait... that's already happened.
17. If you want low cost energy to increase America's productivity, building a whole new energy source and grid while continuing to pay off the perfectly adequate one we have now, isn't the way to accomplish it.  Switching to renewables is only going to drive prices up.  I don't believe any "low cost renewables" hogwash.  It does not pencil out.
18. The only ones who can afford electric cars are the wealthy.  The other 99% are going to cling to their gas cars as long as they can, and then simply do without.  Every American is not going to switch to an electric car.
19. A Tesla charged in WV is not a coal-powered car any more than one charged in New York City.  The entire grid is a mix of both "dirty" and "clean" electrons, however there are much more "dirty" ones than "clean" ones.  They get all mixed up.  You can't segregate them.
20. Electrifying everything is putting all our eggs into one energy's basket.  That's terrifying.  When the electricity goes out at my all electric house, nothing works.  Not even the water.  That's why I have a diesel generator for back up.... and a charcoal-powered grill!  Diversity is a wonderful thing!
21. We don't have room for forests of wind turbines and oceans of solar panels.  Build that crap in your own backyard.
22. The idea that a 3-hour time difference from coast to coast will act as a buffer for renewables failure to produce when needed is preposterous.  It's only 3 hours.
23. Other countries use more renewables.  They also pay exorbitant electric bills and, as a result, use much less electricity.  They are not adding things to their electric load, like cars and heat pumps.  Other countries have robust offshore wind generation.  We have one.  Other countries use buried transmission. We do not.
24. ZzzzzzZZZssss... oh pardon me, I think I fell asleep reading all this drivel.

What a joke!  A joke for Ron White.

Aaron Bloom got run over by a Volvo;
Coming home from transmission rates class last night;
Some folks say there's no such real investment;
But as for these two hucksters, they believe.

I touched on this the other day... merchant transmission is now looking for a handout of public money to finance their speculative transmission projects.

According to this old article, merchant transmission is an offshoot from traditional transmission projects built by utilities and approved by regulators on a cost-plus, rate-of-return basis.  Not all transmission projects are the same. 

"Traditional" transmission is planned by independent grid operators and assigned to incumbent public utilities.  The grid operator plans transmission for a reason, whether to keep the grid reliable, to avoid costly transmission congestion in order to lower prices for electric consumers, or in some instances for "public policy" reasons to meet state or local energy goals.  The reason is never overtly just for the transmission owner to make a profit.  Once the need for a new transmission project is determined by the grid operator, different proposals are evaluated using a number of factors, chiefly price.  Does the transmission project provide more benefits for electric consumers than costs?  Because captive electric consumers must pay for the project they need, this is designed to prevent building transmission that costs more to build than it provides in consumer benefits.  Hence, the "cost-plus, rate-of-return basis" in the description.  Electric consumers pay the cost of building the project, and the transmission owner collects its costs plus a regulated rate of return on their investment.  Because transmission is a utility monopoly (it's more efficient to build one line to serve many than it is to build multiple, competing lines to serve the same population) the amount of profit it can collect from captive consumers, who have no other options for service, must be held to a reasonable level.  Regulators determine the amount of profit to be fair to both the consumers who must pay it, and the utilities who invest their money in the project.

"Merchant" transmission is different.  It's strictly a money-making proposition whose profit is held in check by market conditions, not artificially set by regulators.  A merchant project gambles that its cost to build the project will be less than it can charge for service in a free, unregulated market.  Therefore, merchant projects do not need to go through rigorous vetting processes run by grid operators.  Because there are no captive customers who are required to pay the cost, no entity must determine a merchant project is needed, or that it is cost effective.  All the risk is on the merchant transmission developer.  A merchant developer pays all its own costs to develop and build its project.  In order to recoup its costs, plus profit, a merchant transmission project sells capacity (essentially a roadway to move electricity from one place to another) on its project to voluntary customers on a negotiated basis.  A merchant announces it is building a project, and opens a bidding window for willing customers to negotiate a price for service.  No one is required to take service, it's completely voluntary.  A customer will only sign up if the service is economic for the customer's purposes.  How much profit a merchant makes on its project is dependent upon the value of its service to potential customers.  If the cost to build the project is less than the rates a project can negotiate with its customers, then the merchant project is viable and successful.  Regulators consider this free market setting of rates to provide the mechanism to keep rates in check.  If a merchant charges too much for service in order to make a larger profit, then it won't have customers.  A merchant tries to hit that sweet spot between cost and rates where its project is attractive, but still provides a profit for the company.  Therefore, merchant projects are not regulated beyond some generalized review of the open season offering to customers and negotiations to ensure the merchant fairly evaluates bids and does not give undue preference to certain customers.  When a merchant project is owned by an entity with interests in generation or load-serving utilities, it is especially important to make sure the merchant does not give preference and lower prices to its own affiliates.  The amount a merchant can charge and the profit it can make are not regulated in any way.

This works on paper, but has been generally unsuccessful in real life.  I've concluded that the main reason for merchant transmission failure is that it cannot attract enough customers to hit that sweet spot for success.  A merchant relies on load-serving utilities to purchase its capacity (or contracts with generators to purchase power that includes merchant transmission capacity).  Many load-serving entities are affiliates of huge investor-owned utility conglomerates that also own generation and transmission of their own.  The transmission these companies own is the "traditional" variety, where the utility collects its transmission investment from captive customers.  Traditional transmission is a cash cow for these utility conglomerates because it supplies a slow and steady, regulated profit.  Utilities build transmission because it provides around a 10% return on their investment.  Do you get that kind of return on your investments?  Probably not.  This is why owning transmission is lucrative.

Merchant transmission asks the utility to purchase capacity from another company, and let that company earn a return.  The utility in this situation is only reimbursed on a dollar-for-dollar basis for the transmission capacity it purchases.  There is no profit in purchasing transmission from others.  So, why would a utility want to purchase transmission from a merchant when it could, instead, build and own the transmission project itself and realize a guaranteed profit?  To make it simpler, why buy the milk when you can own the cow?

Now that you know all there is to know about merchant transmission, let's go back to that "shovel-ready" transmission project proposal that was released with such fanfare last week.  The vast majority of the projects on the list are merchant transmission projects.  They've been ineffectively spinning their wheels for years trying to find enough customers to become commercially viable.  If a merchant does not have enough contracted customers, it does not have a sufficient revenue stream to be successful.  Utilities are generally eschewing merchant projects in favor of building their own transmission.  This situation is unlikely to change.  But merchant transmission really, really, really wants to be successful, and renewable energy companies want it to be successful so they don't end up paying any of the costs of new transmission planned by regional grid operators.  Renewable energy companies want to build profitable wind and solar farms in remote locations, but they don't want to pay the cost of getting their newly created product to market.  They want to rely on merchant transmission to do it for them, but merchant transmission can't attract customers.  This is the problem they're all trying to solve.

They're trying to solve it using YOUR money, and not their own.  They do stuff like release lists of merchant transmission they pretend is "shovel-ready" to try to interest a sadly uninformed federal government into showering them with taxpayer cash in the name of "infrastructure."  It's your money, little taxpayer, not the government's.  The schemers behind the 22-project "list" include merchant transmission companies and renewable energy generators.  These are the companies who will make a whole bunch of money if they can only get merchant transmission off the ground.  It includes Michael Skelly, famous for losing $200M of private investor cash on a failed merchant transmission scheme.

The schemers want the federal government to help them out.  If that happens, merchant transmission is no longer merchant.  It's dependent upon taxpayer money to succeed, and if it fails again it's only taxpayer money that is lost.  Private investors won't be risking anything if the government backs up the scheme with loan guarantees, tax credits, and customer mandates.  The schemers propose that the federal government power marketers be required to sign up as customers of merchant transmission and become resellers of the transmission capacity that the merchants are unable to sell to utilities.  This does not require utilities to become customers, and they won't.  It merely leaves the federal power marketer holding the bag on transmission capacity no one wants.  They don't consider that the federal power marketers are essentially running a utility.  They are a zero-sum game.  Their customers pay all their costs to operate, but because they are a government entity, they aren't trying to make a profit.  Their captive customers depend on the power marketer (such as TVA) to supply power.  All the costs of the power marketer are paid for by their captive customers.  If TVA gets left paying for transmission capacity that it cannot sell to investor-owned utilities, the cost falls to TVA customers, not the federal government.  If the merchant is guaranteed to collect its costs from the TVA, then it can no longer negotiate prices in a free market that provides the necessary cap on profit.  If TVA is required to purchase capacity from merchants, the merchant can charge whatever it wants.  Where's the necessary regulation?  It does not exist!

There are also problems with federal loan guarantees.  When Michael Skelly spent $200M on his failed merchant projects, the only ones who lost money were the investors.  If the federal government now guarantees a loan for a merchant project will be repaid, then the U.S. taxpayers are the investors who will be left with nothing but debt.  The merchant has absolutely no risk and will still be whole after failure.  This is NOT a merchant construct!

And let's talk about those tax credits... where does the money for those come from?  Taxpayers.  If a merchant transmission company pays less taxes, that means you have to pay more to maintain the same amount of government.  What's more, the proposed tax credits are supposed to be convertible to cash.  If a company eligible for the tax credit cannot use the credit to reduce its tax burden because it pays little to no tax, the government will PAY them the amount of the tax credit as a refund.  Outrageous!  The schemers say tax credits are necessary for merchant projects because:

So tax credits are to be used to reduce the cost of merchant transmission so they don't have to find as many customers in order to make their projects profitable?  Again, providing a risk-free environment for a market based project obliterates its "merchant" construct.

Merchant transmission assumes all financial risk for its project.  In exchange for little to no regulation on its profits, a merchant assumes all financial risk of its project's viability.  Handing a merchant taxpayer cash shifts risk to taxpayers.  If we're going to make taxpayers captive investors in merchant projects, then they are no longer merchants and must be regulated like "traditional" transmission.  There must be a need for the project, it must be cost effective as determined by an independent grid operator, and its profits must be kept in check by regulators.

Instead, these greedy schemers are asking for you to become a captive investor in their project without earning any return at all for your risk.

The schemers might be able to pull the wool over the media's eyes, and also those of government bureaucrats that don't know the difference between merchant and traditional transmission, but they'll never succeed at pulling the wool over the eyes of experienced regulators.  Maybe when merchant negotiated rate authority begins being vacated and denied, people will get wise.  Until then, it's a merchant transmission feeding frenzy on taxpayer funds, even though these projects are no longer actually merchants.

Will you remember him when you turn on the "clean" electricity the media tells me you're "demanding?"

Read Joe Kalin's story in the St. Joseph, Missouri, News Press.

Mr. Kalin is being threatened with eminent domain so that a merchant transmission company can build an overhead electric transmission line across his family farm. 

Perhaps for you, dear reader.  Are you a person east of the Mississippi who has been demanding "clean energy?"  Do you know and appreciate what it's going to take to fulfill your "demands?"  There are millions of Joe Kalins between your house and that fictional "Saudi Arabia of Wind" located vaguely somewhere in the Midwest.  It's time to get acquainted.  Remember his face!  And think about what he's being asked to sacrifice so that you can assuage your climate guilt by pretending the electricity you freely use is "clean." 

Mr. Kalin isn't going to use any of the electricity that's proposed to cross his farm.  He gets no benefit.  Just sacrifice.  If he has to sacrifice in the name of "clean energy," what sacrifice are you making?

No, I'm serious.  I want to know what you're sacrificing for the sake of the climate.  I mean personally, not some generalized feel good buzzwords.  Go ahead, post a comment.  I want to hear from you.

Are you donating a portion of your private property for the use of a profit-generating corporation?  Mr. Kalin is being told he must allow an easement across his own property so a corporation can make money.

Are  you donating a portion of your 401(K) to some climate change reversing business?  How much?  A farmer's retirement is his land.  When his land is appropriated for someone else's use, it reduces the productivity and future uses for his farmland.  It reduces the value of his retirement nest egg.

I have yet to hear from one person demanding clean energy, just one for goodness sake, who can say their sacrifice in the name of "climate change" is as significant as Joe Kalin's.

Don't turn a blind eye to the reality of "clean energy."  And don't give me a list of "whataboutisms".  They don't impress me.  Everything you do affects someone else.  When are you going to be responsible for your own needs?  Or are you just that type of person who gladly walks over others to benefit yourself?