News Flash, right? Not really. Investor Owned Utilities (IOUs) are always hoping to make big bucks -- that's what their investors want them to do. And making a buck for investors trumps serving the public need every time. Every.Single.Time. I'm not sure who ever thought it was a good idea to allow entities who peddle a public service, like utilities, to be investor owned, for-profit, monopoly corporations. It sort of defies common sense, if you think about it too much. There are plenty of municipal or co-op utilities that operate on a profit neutral basis, of course that just means that they have to give back anything left over, instead of paying a dividend to investors. It doesn't necessarily rein in their spending to produce lower rates for customers.
IOUs make money owning stuff. Sure, they make money supplying you with electricity, but they make the big bucks by owning stuff (for your benefit, of course) that you pay off over a long period of time, with interest. It works almost like a real estate mortgage. The IOU (and its investors) put up a sum of cash (or credit) to pay for something like an electric generation station, or a transmission line. You pay them back for that investment over a period of many decades, often at 10% or higher return (or interest) on your unpaid balance. Your mortgage statement probably tells you exactly how much principal and how much interest you pay each month. Your electric bill never does.
And here we are, smack dab in the middle of a changing preference for electricity generation. Gas is cheaper than coal, and much generation has switched in recent years. New gas plants mean new IOU assets you will pay for. And then there's the wind hype. Greenwashing is also brainwashing people to think they can meet all their electric needs with wind power generated... somewhere else (not in MY backyard!). And Big Wind (yes, that's a proper noun) is in a huge panic to build, build, build before the federal Production and Investment Tax Credits expires at the end of 2019. Wind turbines generate money as they turn -- .023 for every kwh produced for their first 10 years of operation. Wow, what a savings, huh? Except where do tax credits come from? Where does the money come from? It comes from YOU, little taxpayer. It comes right out of your pocket, and many of the companies receiving these generous credits are foreign corporations.
So, with the big wind push, everyone wants to own one of these money mills, or maybe a big, fat new transmission line to be used to move the kwh generated to willing buyers. Who are the buyers? They're the utilities that serve customers. Pretty much no electric customers buy their electricity directly from a wind farm. Their utility makes the purchase from the wind farm and re-sells the electricity to you. But an IOU getting all its power via purchase agreements with companies that own the generator isn't getting that big, fat return on owning the generator, a guaranteed income stream for decades. The same is true of transmission lines... no IOU wants to pay some transmission company (like Clean Line Energy Partners) for service when it can own the transmission line (and the return) itself. Note to Clean Line: This is why you failed! The IOUs may be slow, but they're not exactly dumb when they smell money. So it's happened that now it's all the rage for IOUs to buy wind farms and build new transmission lines to connect the wind farms with customers. The IOU makes a return on the cost of the wind farm, the customers cover all the costs to operate the wind farm, and it also makes a big return on any transmission line it owns (and you also pay operating costs for the line). And if the IOU can get these deals approved fast enough, they can also collect all the tax credits that fall out of the sky when the turbines spin. Some companies claim that they will use the credits to make the electricity cheaper for customers, and that with the credits, owning the new generator actually makes electric costs cheaper. Win, win, win!!!
But IOUs, as monopolies, need the permission of regulators (who are supposed to take the place of competition in a monopoly construct) to recover the costs of buying generators and building transmission lines from customers like you. American Electric Power was the first big IOU to jump into the pool, asking regulators in four different states to approve their plan to buy the nation's biggest wind farm and build a big new transmission line to connect it, and charge the costs of doing so (and their return, of course) to customers. AEP's execution is faulty. Not only did they fail to follow utility regulations that require a competitive bidding process for new generator purchases, but they also couldn't show any true need for the transmission line. New transmission is planned by regional transmission authorities, who determine a reliability, economic, or public policy need for the project, and then assign costs to users of the new line. A company who doesn't want to go through the regional planning process to determine a need for new transmission usually ends up as a merchant project, where the company assumes the risk and investors shoulder the cost of building it, with revenue recognized through capacity charges billed to those who use the new line. But AEP didn't want to assume any risk for its investors, so it asked that regulators approve its transmission line without there being any need for it at all (except to connect the new generator it failed to competitively source). AEP is stuck in the molasses swamp now and it's doubtful they'll be able to pull this off without some under the table and behind closed door deals. (The cost of which is NOT billable to customers!!) AEP's idea failed because it was not smartly executed.
Now our second example was planned much better, over a longer period of time, and not the knee-jerk rush to riches steamroll that AEP attempted. Ameren got regional planning approval to build a new transmission line across northeast Missouri several years ago. Supposedly it was needed for reliability and to move renewable electricity across the region. The project nearly tanked on its first run at approval because it stupidly attempted to route it on new right of way across areas without a transmission line. But, ever resourceful, Ameren finally recognized its problem and went back to the drawing board to re-route its project on existing rights of way. And it was approved.
Now Ameren says it wants to buy what will be the biggest wind farm in the state of Missouri, and use the new transmission line to connect it to its customers. Ameren arranged its big wind buy into distinct and manageable pieces. First, the transmission line. Then the wind farm. If Ameren can pull this off, it will be sitting pretty with two new assets that it can earn a return on for decades. AEP.... take a lesson in strategy and patience, instead of acting like a bull in a china shop.
Of course, it remains to be seen if this wind farm will actually be built and if Ameren will actually end up owning it. It also remains to be seen how many more large IOUs try to get into this game before the tax credits dry up. After that happens, Big Wind is dead.
IOUs make money owning stuff. Sure, they make money supplying you with electricity, but they make the big bucks by owning stuff (for your benefit, of course) that you pay off over a long period of time, with interest. It works almost like a real estate mortgage. The IOU (and its investors) put up a sum of cash (or credit) to pay for something like an electric generation station, or a transmission line. You pay them back for that investment over a period of many decades, often at 10% or higher return (or interest) on your unpaid balance. Your mortgage statement probably tells you exactly how much principal and how much interest you pay each month. Your electric bill never does.
And here we are, smack dab in the middle of a changing preference for electricity generation. Gas is cheaper than coal, and much generation has switched in recent years. New gas plants mean new IOU assets you will pay for. And then there's the wind hype. Greenwashing is also brainwashing people to think they can meet all their electric needs with wind power generated... somewhere else (not in MY backyard!). And Big Wind (yes, that's a proper noun) is in a huge panic to build, build, build before the federal Production and Investment Tax Credits expires at the end of 2019. Wind turbines generate money as they turn -- .023 for every kwh produced for their first 10 years of operation. Wow, what a savings, huh? Except where do tax credits come from? Where does the money come from? It comes from YOU, little taxpayer. It comes right out of your pocket, and many of the companies receiving these generous credits are foreign corporations.
So, with the big wind push, everyone wants to own one of these money mills, or maybe a big, fat new transmission line to be used to move the kwh generated to willing buyers. Who are the buyers? They're the utilities that serve customers. Pretty much no electric customers buy their electricity directly from a wind farm. Their utility makes the purchase from the wind farm and re-sells the electricity to you. But an IOU getting all its power via purchase agreements with companies that own the generator isn't getting that big, fat return on owning the generator, a guaranteed income stream for decades. The same is true of transmission lines... no IOU wants to pay some transmission company (like Clean Line Energy Partners) for service when it can own the transmission line (and the return) itself. Note to Clean Line: This is why you failed! The IOUs may be slow, but they're not exactly dumb when they smell money. So it's happened that now it's all the rage for IOUs to buy wind farms and build new transmission lines to connect the wind farms with customers. The IOU makes a return on the cost of the wind farm, the customers cover all the costs to operate the wind farm, and it also makes a big return on any transmission line it owns (and you also pay operating costs for the line). And if the IOU can get these deals approved fast enough, they can also collect all the tax credits that fall out of the sky when the turbines spin. Some companies claim that they will use the credits to make the electricity cheaper for customers, and that with the credits, owning the new generator actually makes electric costs cheaper. Win, win, win!!!
But IOUs, as monopolies, need the permission of regulators (who are supposed to take the place of competition in a monopoly construct) to recover the costs of buying generators and building transmission lines from customers like you. American Electric Power was the first big IOU to jump into the pool, asking regulators in four different states to approve their plan to buy the nation's biggest wind farm and build a big new transmission line to connect it, and charge the costs of doing so (and their return, of course) to customers. AEP's execution is faulty. Not only did they fail to follow utility regulations that require a competitive bidding process for new generator purchases, but they also couldn't show any true need for the transmission line. New transmission is planned by regional transmission authorities, who determine a reliability, economic, or public policy need for the project, and then assign costs to users of the new line. A company who doesn't want to go through the regional planning process to determine a need for new transmission usually ends up as a merchant project, where the company assumes the risk and investors shoulder the cost of building it, with revenue recognized through capacity charges billed to those who use the new line. But AEP didn't want to assume any risk for its investors, so it asked that regulators approve its transmission line without there being any need for it at all (except to connect the new generator it failed to competitively source). AEP is stuck in the molasses swamp now and it's doubtful they'll be able to pull this off without some under the table and behind closed door deals. (The cost of which is NOT billable to customers!!) AEP's idea failed because it was not smartly executed.
Now our second example was planned much better, over a longer period of time, and not the knee-jerk rush to riches steamroll that AEP attempted. Ameren got regional planning approval to build a new transmission line across northeast Missouri several years ago. Supposedly it was needed for reliability and to move renewable electricity across the region. The project nearly tanked on its first run at approval because it stupidly attempted to route it on new right of way across areas without a transmission line. But, ever resourceful, Ameren finally recognized its problem and went back to the drawing board to re-route its project on existing rights of way. And it was approved.
Now Ameren says it wants to buy what will be the biggest wind farm in the state of Missouri, and use the new transmission line to connect it to its customers. Ameren arranged its big wind buy into distinct and manageable pieces. First, the transmission line. Then the wind farm. If Ameren can pull this off, it will be sitting pretty with two new assets that it can earn a return on for decades. AEP.... take a lesson in strategy and patience, instead of acting like a bull in a china shop.
Of course, it remains to be seen if this wind farm will actually be built and if Ameren will actually end up owning it. It also remains to be seen how many more large IOUs try to get into this game before the tax credits dry up. After that happens, Big Wind is dead.
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