Observations On Public Utility Regulation
Q: How many regulators did it take to regulate wholesale sales in 1980?
A: The FERC and a staff of 1,500.
Q: How many regulators does it take to regulate wholesale markets in 2018?
A: Maybe 9,000, including FERC and staffs of NYSO, NE-ISO, MISO, PJM, CAISO, ERCOT and NERC.
- When given a span of numbers from five studies the mediocre regulator will choose the arithmetic average.
- The worst reason to continue a regulatory policy is because your predecessors established it.
- No two commissions are the same across state lines or over time in the same state.
- Advocates will always point to favorable treatment of a topic in another state overlooking all the unfavorable practices of that same state.
- Everyone has an opinion on rate of return levels as they figure it's between the interest rate on a passbook savings account and that of a credit card! No citizen has an opinion about the other four revenue requirement components: depreciation, operating expense and taxes.
- Most typically advocates of a position will selectively quote Bonbright, avoiding the parts conflicting with their position.
- When there is controversy over a new proposal some commissions order a "pilot study" under the theory that consumers in the subject utility's service territory are unique in the country or perhaps even within the state.
- From the British TV series "Yes, Minister": the first rule of any bureaucracy is keep all it has. The second rule is to get more.
- Open meetings are bureaucracy's version of theatre. It's all scripted and the ending is known in advance.
- It is naturally assumed by some advocates that consumers, otherwise busy dealing with insurance, health care, mortgages, internet, cable TV, competing mobile phone offers and other choices have a particularly hard time understanding utility rates and bills.
- Public service commissions are so named because they regulate companies which provide public services. Not otherwise.
- When legislatures get mad at their regulators they sometimes change the names of the agencies believing, I presume, that the name change will lead to lower rates.
- The advantage of a three person commission over a five person commission is two less scripted speeches at each meeting.
- If a regulator becomes well known by the public either the regulator or regulation is in trouble.
Nuclear Power Advances in Turkey
In 2013, Turkey signed an agreement with Japan to build the former’s second nuclear power plant with an anticipated completion date of 2028. The lead firm will be Mitsubishi Heavy Industries Ltd. The lead Turkish partner is the Electricity Generation Company Incorporated. “This will be an opportunity to export goods and services to Turkey that American firms will not want to miss,” according to Harika Consulting LLC’s CEO William Bennett.
After his visit last October to the town and environs of Sinop on Turkey’s Black Sea coast, Bennett said “I can understand why Turkey plans to build its second nuclear power plant at the northernmost point on the country’s Black Sea coastline. There is plenty of water to serve as coolant for the plant; the site is away from the town itself with plenty of land for the various buildings; and the view of the sea at Sinop is so beautiful that the workforce will no doubt eagerly want to go there every day!”
Oil Markets and Uncertainty
Oil price levels and directions are, by their nature, uncertain. The current economic environment provides no exception. Broad equities markets are showing cracks in a long running bull market and any list of economy-moving elements includes a wider than normal range of influences. Overall, concerns focus on growth slowing globally and the effect of tariffs imposed between the United States and China. A very incomplete list of factors would include rising interest rates, Brexit, emerging market challenges, growing U.S. budget deficits and political uncertainties in the Middle East.
Oil markets continue to worry about the impact of the November 4 sanctions on Iranian oil, now ameliorated by exceptions granted to several countries. The sanctions are bullish, but a softer economy could limit their impact, especially in view of the waivers granted. Some observers believe the lost production has already been factored into price. Analysis of how to deal with Iranian oil already taken in anticipation of sanctions is complicated, because China has reportedly been storing rather than refining the crude oil. This is bearish for future supply/demand balances.
Alternative supply sources may not be able fully to supply adequate crude oil to refiners. U.S. crude oil production remains at 10.9 million barrels daily In EIA’s weekly supply/demand estimates. This level of output was reached In June 2018, after a long period of growth. Production has remained stuck around 11 million barrels per day since then.
One private analysis projects domestic U.S. production moving to 13 million barrels daily by 2021. This analysis suggests after 2021, U.S. production will be less important in global balances. This will be because there will prove to be fewer barrels than first thought, per-well productivity will also be lower than expected, and there will be flatter growth in production. The Eagle Ford Shale, for example, is already facing reduced estimates of quantity.
Empowering Energy Consumers via Blockchain Technology
Energy organizations embracing a decentralized future today, are ensuring their competitive positioning for tomorrow
Energy organizations today face increasing pressure to seek and develop innovative competitive advantages in commodity energy markets
Providing customers with a secure and cost-effective power and gas supply is no longer enough. Energy retailers in competitive markets strive to differentiate a commodity product offering among a slew of competitors vying for an increasingly sophisticated customer base. Further, energy providers must adapt to markets with limited and at time decreasing demand growth as energy efficiency initiatives and demand-side management options become more prevalent. To better serve their customers and retain footholds in their markets, energy organizations are seeking new ways to expand and retain this increasingly flexible and sophisticated customer base by finding ways to generate additional value and move into new sectors.
An emerging trend shows energy organizations actively exploring integrated product bundles, combining smart building technologies with traditional commodity product offerings. The natural adjacency of energy organizations to the smart building sector places innovative energy organizations in an optimal position to take advantage of some of the expected growth from the sector. This opportunity in itself presents an attractive value proposition for energy organizations as shown for example by Navigant Research which estimates that the annual revenue of the global building energy management systems (BEMS) market is expected to grow from $4 billion in 2017 to $13 billion by 2026. Maintaining emphasis on adapting to and finding new ways to utilize innovations has never been more critical in the energy sector than it is today.
Blockchain technology is one way organizations today are looking to expand customer product offerings and drive new value
On this next horizon of energy innovations also sits blockchain technology, promising not just new waves of growth but a re-envisioning of long-standing norms of our current energy systems. The utilization of blockchain technology combined with other evolving technology mediums such as the internet of things (IoT), artificial intelligence, cloud, and edge computing will seek to provide energy consumers with new and flexible ways of transacting, responding to market signals, and managing overall consumption. Similar to the trends surrounding smart building technology, the effective utilization and adaptation to blockchain technology will become an essential element of competitive positioning for energy retailers and consumers on the system.
Through the deployment of localized permissioned blockchain networks, consumers will increasingly have access to a host of transactive energy services ranging from peer-to-peer transactions to advanced energy demand management. Transactive energy focuses on the economic and control techniques used to manage the flow or exchange of energy within a power system. At the center of enabling these new levels of transactions between parties, is the ability to securely and reliably exchange and share data between the parties involved in the power system. This is where blockchain comes in and plays a vital role in allowing these secure and reliable data exchanges and transactions among parties to occur.
To find out more about this interesting concept contact Chris Peoples, PP&A's Managing Partner, at email@example.com or click here to view the full article at PP&A's website including a specific example seen in the market today.
Fracking for Gas
One of the benefits of NCAC is the opportunity to see some parts of the energy system up close. As part of the USAEE/IAEE meeting in September, I went on a trip organized by NCAC member Omar Cabrales to see natural gas drilling and production in West Virginia. Seeing Antero Resources workers in the process of drilling eight different wells into the Marcellus Shale from one location was fascinating. What made it even more special was that Omar had arranged for a geology professor from West Virginia University to travel with us so that we could ask questions in real time about what was going on “down hole”.
We saw them treating the water that returns from the well to remove the salt and landfilling it in an environmentally-responsible manner. Then we visited a gas processing site where they remove impurities to get the gas ready for shipping to customers, where the massive scale was impressive. We also saw many pipelines being laid up over hills to get the gas moved to the trunk lines.
I was inspired by seeing and talking to local people being put to work in good paying jobs as they get this important resource to customers (some pipeline welders can make over $200K/year). I was impressed by the concern for safety and environmental responsibility shown by Antero. Seeing many water trucks moving over potholed roads gave me an insight into some of the many challenges overcome in developing this resource. Each truck carried advertising on the back saying “Drivers Wanted ASAP”.
And the directional drilling technology is amazing. They drill down a mile and outward several thousand feet and can hit a 4ft x 4ft square. The professor said he has students who can guide a drill bit from their laptop while in class! A great trip, thanks to NCAC.
This Green House
Here are three views of our construction site on a nice day in September. Otherwise, it’s been spring rains, summer rains, autumn rains – so far 2018 has been one of the wettest years on record here in the Mid-Atlantic region. The incessant rains have definitely slowed construction and limited solar output. But, nevertheless, our amazing team completed the house on November 5, about a week ahead of schedule! Now, we’re dealing with the paperwork, yard clean-up and grooming, and some landscaping.
Here’s the energy picture:
1) Solar and geothermal – and major insulation. Rains have severely reduced solar energy production, but on even partly sunny days, energy use has been balancing out this fall – and that’s with HVAC and hot water systems, the kitchen, and lighting all up and running! Energy efficiency is why this is working, i.e., 45 SEER geothermal heat pumps, immense 6” insulation, LED lighting throughout, and more – and all in spite of suboptimal orientation of our 50 SunPower panels, which are hidden from view on flat sections of the roof.
2) Three Tesla PowerWalls. Still waiting, but Talbot County recently approved their installation, so hopefully won’t be long now. This house is on-grid, not off-grid. But still, we’ve sized our battery storage large enough to let us use all excess solar energy during evening peak periods and at night. Also, together with the solar panels, the PowerWalls will serve as our emergency back-up generator in case the house loses power, which hasn’t happened in the 19 months since we bought the property, as far as we know.
3) Electric cars. Once we’ve got our Use & Occupancy Permit and some furniture next week, we’ll move in (Yes!) and try charging the electric cars. Will charge them during daylight hours so they’ll be running on solar energy, versus PJM’s coal-dominated daytime energy mix. Then, on evenings after charging the cars, what happens depends on the season – on winter nights, the house will probably need to use electricity from the grid, which at that point relies mostly on high-efficiency natural gas turbines; on summer nights after charging the EVs, we expect the PowerWalls will hold enough solar-generated electricity to make it till dawn without buying electricity.
What did all this cost, and will it ever pay back? How much carbon are we preventing from entering the atmosphere, and what’s our per-unit avoided cost of carbon? Will we actually be carbon neutral? Stay tuned. We’ll know once we’ve gotten a full year of operations under our belt. At that point, we’ll do the analysis and hope to present results at the November 2019 USAEE-IAEE North American Conference in Denver.