Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, I feel like we have already done kind of
Speaker 2: one episode or maybe multiple depending on how you define them.
Speaker 2: But you know, we're understanding the incredibly complex, opaque, crucial
Speaker 2: world of how electricity markets work in the US and
Speaker 2: what's good about them and what's bad about them.
Speaker 4: We just got we gotta do more.
Speaker 3: Here's what I've learned from multiple hours.
Speaker 2: This top serious summary.
Speaker 3: It's complicated, No it is, but that's it. And also
Speaker 3: also actually I'll add one more thing. It seems to
Speaker 3: be kind of the worst of multiple worlds. Like in
Speaker 3: a sense there's a lot of regulation, but in another
Speaker 3: sense there's a lot of deregulation. In one sense, you
Speaker 3: have these dominant players. And I have to say a
Speaker 3: lot of this is informed by my experience in I
Speaker 3: guess New York and Connecticut where you have con Edison
Speaker 3: and then ever Source, and so you have these big
Speaker 3: players that you have to pay a lot of money
Speaker 3: to in terms of distribution, but then if you want,
Speaker 3: you can go out to an independent energy supplier and
Speaker 3: pay them for the actual electricity that is going through
Speaker 3: the pipes or the wires of con ed or an
Speaker 3: ever source. But it never ends up making a difference
Speaker 3: as far as I can tell, because the distribution costs
Speaker 3: are still so high.
Speaker 2: Yeah, I mean, I think the part about it that
Speaker 2: like why it feels like a mess intuitively, is this
Speaker 2: attempt to essentially create a market on top of something
Speaker 2: that we know is a natural monopoly, right, because obviously
Speaker 2: you're not going to have like multiple companies or ideally
Speaker 2: I don't think it makes sense. Maybe it does to
Speaker 2: have multiple companies like running their own wires and distribution.
Speaker 2: I think we all sort of get why there is
Speaker 2: this natural monopoly aspect, But then of course you try
Speaker 2: to introduce market aspects and so different producers whether it's solar,
Speaker 2: whether it's nuclear, whether it's coal, whether it's natural gas,
Speaker 2: whether it's wins, et cetera, are kind of in a
Speaker 2: market and it depends. So I think in Texas there's
Speaker 2: probably different than Virginia versus Tennessee.
Speaker 3: That's the other thing. There's state by state differences.
Speaker 2: Obviously, Texas there's a lot of competition where you can
Speaker 2: basically just do whatever you want, and whoever is the
Speaker 2: cheapest price at any given moment, that's who is supplying
Speaker 2: the power. So you try to like overlay on top
Speaker 2: of this natural monopoly some sort of market ish thing
Speaker 2: where different people compete, and then of course you have
Speaker 2: the issue of because it's not a market. These utilities are,
Speaker 2: as you mentioned, heavily regulated, constrained on what they can invest,
Speaker 2: constrained on what they can price, constrained in the connection
Speaker 2: they can link between their own investment and say renewables
Speaker 2: versus then capture during that with higher prices, and everyone
Speaker 2: complains that for whatever kind of energy they make, the
Speaker 2: system isn't working.
Speaker 3: Well yeah, but I think you put it perfectly. It's
Speaker 3: like imposing market forces on a natural monopoly, and it
Speaker 3: just seems like there are some downsides to that model.
Speaker 3: I'm going to put it that way. Downsides for consumers
Speaker 3: and then downsides in terms of maybe the transition to
Speaker 3: decarbonized energy.
Speaker 2: And this is the key thing we are putting. There's
Speaker 2: so much riding at stake of the power system, right
Speaker 2: because obviously we're attempting to take the old model that
Speaker 2: was in place for decades and then replace a lot
Speaker 2: of the generation sources with zero carbon versions, whether they're
Speaker 2: solar or wind or maybe nuclear, though there's not a
Speaker 2: ton of nuclear construction, but that is one attempt. Then
Speaker 2: there's also booming demand for the first time in decades,
Speaker 2: and this is something we have talked about in the
Speaker 2: context of AI data centers. Tracy wrote that great post
Speaker 2: recently just talk about how like every question on analyst
Speaker 2: calls now for these companies is basically demand from AI.
Speaker 3: Oh it was crazy. I looked at the transcript for
Speaker 3: Dominion's most recent earnings call, and I think there were
Speaker 3: like five or six questions asked, and four or five
Speaker 3: of them more about data centers. And Dominion's doing a
Speaker 3: bunch of interesting things, but people only want to hear
Speaker 3: about data centers at the moment totally.
Speaker 2: So you have two really novel things. You have the
Speaker 2: decarbonization effort and you have the increase in load growth
Speaker 2: I think they call it for the first time in decades.
Speaker 2: And so it's like, are the markets that we've designed,
Speaker 2: this combination of natural monopolies with some sort of market mechanism,
Speaker 2: do they work for all this? And I think the
Speaker 2: jury is still out to save the minimum.
Speaker 3: I am ready to confirm my prior that this whole
Speaker 3: space is very complicated and I don't quite get how
Speaker 3: we ended up with this particular system, So let's do.
Speaker 4: It all right.
Speaker 2: Well, I'm psyched to say that we have two perfect
Speaker 2: guests to sort of help us understand how we got
Speaker 2: here in these markets and what the flaws might be.
Speaker 2: We're going to be speaking with Matt Huber, who is
Speaker 2: a professor at Syracuse in the Department of Geography and Environment,
Speaker 2: and we're also going to be speaking with Fred Stafford.
Speaker 2: He's a pseudonymous energy writer who works in a separate industry,
Speaker 2: but he's someone who's writing I have enjoyed for a
Speaker 2: long time. I've learned a lot from and so we're
Speaker 2: disguising his own voice so that he can keep his
Speaker 2: professional life and his writing life separately. So Fred and Matt,
Speaker 2: thank you so much for coming on outlaws.
Speaker 5: Thanks for having me, thanks for having us. Happy to
Speaker 5: be here.
Speaker 2: So why didn't I just start with the simple question?
Speaker 2: You two have been writing in various places at at
Speaker 2: piece recently, and I think Damage magazine and Jacobin and elsewhere.
Speaker 2: Why what is it about the nature of electricity markets
Speaker 2: that you feel like you have to write about and explain.
Speaker 5: So I love to answer the question why electricity hy
Speaker 5: electricity markets because for me, as kind of a stem
Speaker 5: brained person on the political left, I got excited hearing
Speaker 5: about things like nuclear power and that seems really important
Speaker 5: and really necessary for climate issues and so on. And
Speaker 5: what I found was that inlectricity, once you start looking
Speaker 5: at like why isn't there more nuclear power, you quickly
Speaker 5: run into this fascinating domain in which central planning runs
Speaker 5: right up against all these markets and this really interesting
Speaker 5: tension of some things are planned some things or markets,
Speaker 5: why is it like that? And then what I also
Speaker 5: saw on the political left is that nobody really was
Speaker 5: talking about this. There wasn't really any clear analysis of
Speaker 5: why there wasn't more nuclear power or anything, because I
Speaker 5: think a lot of this sort of discussion was really
Speaker 5: guided by kind of environmental politics. So that's really what
Speaker 5: drove me into this as like an intellectual subject.
Speaker 4: Yeah.
Speaker 6: Also, when you look on the political left, there's tendency
Speaker 6: to kind of fetishize the kind of like smallest beautiful
Speaker 6: vision of small scale decentralized energy generation, and when you
Speaker 6: look at the scale of the climate crisis, and how
Speaker 6: much we need to build and how much we need
Speaker 6: to transform. That vision of decentralized energy sits well with
Speaker 6: kind of decentralized markets and price signals, but it doesn't
Speaker 6: really sit well with the need for centralized planning for
Speaker 6: large scale building and investment and to try to deal
Speaker 6: with the kind of load growth that you both mentioned
Speaker 6: at the top, and so the smallest beautiful visions seemed
Speaker 6: to be totally out of step with the kind of
Speaker 6: large scale challenge we have in front of us and
Speaker 6: trying to kind of think through how we could reform
Speaker 6: the electricity system to meet that challenges. I think why
Speaker 6: we got into this topic.
Speaker 3: So I'm going to ask the obvious question then, which
Speaker 3: is how did we end up with this system? Because
Speaker 3: my understanding reading some of your work is that there
Speaker 3: was a time in the early nineteen hundreds where we
Speaker 3: had very centralized, very regulated power companies utilities basically, and
Speaker 3: then later on in the century we moved to this weird,
Speaker 3: sort of pseudo deregulated market where we had independent operators
Speaker 3: plus the regulated utilities. How did that transition actually happen? Like, basically,
Speaker 3: walk us through the history of the US energy industry
Speaker 3: in under twenty minutes, preferably.
Speaker 6: You know, it really does go back to early twentieth
Speaker 6: century where a lot of sort of progressive lawyers and
Speaker 6: progressive political thinkers sort of realized there were these parts
Speaker 6: of the economy that were seen as sort of essential
Speaker 6: services like water, like gas, like railroads even that were
Speaker 6: sort of not really best left totally to the private
Speaker 6: sector and totally to the market, and that are better
Speaker 6: sort of regulated as public utilities because there's a fundamental
Speaker 6: kind of public interest in making sure that those utilities
Speaker 6: are kind of running smoothly and offering those essential services.
Speaker 6: And pretty soon when electricity came on the scene, it
Speaker 6: became pretty clear that electricity was one of those essential
Speaker 6: services before it came under the domain of public utility law. Now,
Speaker 6: the problem was the sector of electricity was controlled by
Speaker 6: capitalists like people like Thomas Edison and others, and eventually
Speaker 6: like Samuel Ensall, who wanted to run the system for profit,
Speaker 6: and that kind of tension kind of played out for
Speaker 6: a while, but eventually they realized that, okay, doesn't make
Speaker 6: sense for society to have multiple competing electric distribution companies
Speaker 6: sort of laying wires against each other. So what we
Speaker 6: really need is to actually have a single electric utility,
Speaker 6: and the industry sort of fought and compromised to make
Speaker 6: sure that that electric utility would be run by a
Speaker 6: private investor owned utility. They'd be given a monopoly franchise
Speaker 6: over a given territory, and in exchange, they would be
Speaker 6: regulated by public utility commissions, which we still have in
Speaker 6: this country. They still regulate your distribution utilities, and they're
Speaker 6: supposed to regulate them for the public good, for the
Speaker 6: public interest, make sure these private utilities aren't like gouging consumers.
Speaker 6: And so that created a kind of compromise or utility
Speaker 6: consensus that lasted throughout much of the twentieth century. And
Speaker 6: these sort of monopoly regulated utilities. You know, they built
Speaker 6: the grid. You know, if we talked today about the
Speaker 6: return of load growth, there was a lot of load
Speaker 6: growth in the post World War two era, and they
Speaker 6: developed this model where their investments were regulated and the
Speaker 6: prices they charged to consumers were regulated. But they were
Speaker 6: really effective at at building out the grid and building
Speaker 6: out generation transmission distribution. Now by the nineteen seventies they
Speaker 6: started to come into disfavor. There was, as many would
Speaker 6: call it this kind of shift towards neoliberal ideology where
Speaker 6: really all the kind of big hulking institutions of the
Speaker 6: post war era, like government and unions and utilities were
Speaker 6: seen as kind of inflexible and not competitive, and we
Speaker 6: need to kind of really smash these institutions and deregulate
Speaker 6: them and break them into smaller and competing parts. And
Speaker 6: so at that point you get this long process of
Speaker 6: trying to break up this utility system that again used
Speaker 6: to be run by a single entity and they could
Speaker 6: use central planning, they could really invest with long term considerations,
Speaker 6: and then you break it up, and as you both
Speaker 6: talked about in the introduction, now we kind of have
Speaker 6: competition and generation. You have all these different independent power
Speaker 6: producers that are competing to sell electricity onto wholesale markets,
Speaker 6: and the wires, the transmission and distribution still tend to
Speaker 6: be owned by utilities, but they've also found ways to
Speaker 6: insert competition into the retail side, where consumers can have
Speaker 6: so called choice over things. And so what they've done
Speaker 6: is kind of broken up this highly integrated and complex
Speaker 6: physical system called the grid and broke it up into
Speaker 6: parts where they can subject it to competition and markets
Speaker 6: and price signals.
Speaker 4: Now, this is where we kind of.
Speaker 6: Reached this in pass where where if we really want
Speaker 6: to totally restructure the grid, totally grow it in ways
Speaker 6: that can serve decarbonization and AI and all this stuff,
Speaker 6: that perhaps, like maybe this sort of more integrated, more
Speaker 6: central planning, more coordinated and socialized investment model could be
Speaker 6: more useful than this very scattered and sort of fragmented
Speaker 6: system we have now.
Speaker 2: So Fred, why did you jump in? Because, as you
Speaker 2: said in the intro, you got interested in nuclear power,
Speaker 2: and in your view, the current market model is not
Speaker 2: amenable to the scale of nuclear power expansion we need,
Speaker 2: and we know that there's hardly any building. I think
Speaker 2: there was a new reactor last year, but was incredibly slow.
Speaker 2: What is the core flaw of putting nuclear into the
Speaker 2: existing electricity model?
Speaker 5: The major issue is that nuclear is this extremely capital
Speaker 5: intensive infrastructure that costs so much, and it produces very
Speaker 5: cheap power once it's built, where the operational expenditures are
Speaker 5: very low, and it does so in a way that
Speaker 5: is just sort of constant. It's not flexibly moving like
Speaker 5: power increasing and decreasing. It's just sort of dumping twenty
Speaker 5: four to seven what people call baseload power out into
Speaker 5: the grid, and because someone has invested so much capital
Speaker 5: in this thing, to recoup the costs, they have to
Speaker 5: run this and try to get revenues twenty four to
Speaker 5: seven max capacity. Unfortunately, the way that revenues are assigned
Speaker 5: and for power generators in these sort of restructured areas
Speaker 5: that are really dictated by marginal prices. At any given
Speaker 5: unit of time, the price of electricity on the market
Speaker 5: is the price of the marginal unit, which often tends
Speaker 5: to be a price of natural gas. Sometimes it's even
Speaker 5: close to zero because there will be a lot of
Speaker 5: renewables at that particular time and place. But you kind
Speaker 5: of lose the guarantee that you can recover your costs,
Speaker 5: you being the owner of the nuclear plant. So it
Speaker 5: just makes it very hard to know you're going to
Speaker 5: recoup that investment. It means that all this wind and
Speaker 5: solar energy, which is at any given time might be
Speaker 5: on the grid, maybe isn't, but when it is, it's
Speaker 5: bringing down the market prices. So it basically just disturbs
Speaker 5: this way that nuclear and hydro electric power, pumped hydro
Speaker 5: storage facilities, all these big, big infrastructures were invested in
Speaker 5: in the way they recouped costs, and because the utilities
Speaker 5: had this sort of cost of service regulation where the
Speaker 5: idea is they would invest in the infrastructure and they
Speaker 5: would get a profit on the capital investment. They'd be
Speaker 5: allowed that roughly nine to ten percent profit. But the
Speaker 5: total costs for everything that they had invested in and
Speaker 5: were spending to run the electricity system to provide electricity
Speaker 5: service to customers was being socialized to those customers. When
Speaker 5: you don't have that model, the revenues are less guaranteed.
Speaker 5: The revenues are just whatever the market revenues are. And
Speaker 5: there's just various reasons why that competition from the other
Speaker 5: forms of energy and the way the prices are set
Speaker 5: according to whatever the marginal unit of power is, it
Speaker 5: just doesn't work well for these big power projects.
Speaker 3: Wait, can you give us a specific example of a
Speaker 3: utility that might be doing something or have more money
Speaker 3: to make renewable energy investments. I'm sort of leading you
Speaker 3: on here, but one thing that you mentioned in your
Speaker 3: writing and going back to our intro, is Dominion building
Speaker 3: its own ships to install wind turbines. And that was
Speaker 3: kind of stunning to me. I hadn't heard that before,
Speaker 3: So talk a little bit more about like the concrete
Speaker 3: examples of utilities maybe doing this at a larger scale
Speaker 3: than some of the independent operators.
Speaker 5: Yeah, so I love the dominion example. Well, I think
Speaker 5: it's so interesting, and we do open our recent essay
Speaker 5: with that. So let's say you're a state and you're
Speaker 5: a state that has democratically determined that you want offshore
Speaker 5: wind to be part of resources that the state is using.
Speaker 5: That a result of some kind of democratic process. People
Speaker 5: might agree disagree with that, but that was a state
Speaker 5: policy aim. Now, if you're the state of New York
Speaker 5: and you want offshore win, you say, all right, we
Speaker 5: have some power markets already, but that's not going to
Speaker 5: be enough to attract any investors in this massive, massive
Speaker 5: capital intensive project that's long term infrastructure. So instead, we're
Speaker 5: going to design we the state, are going to design
Speaker 5: increasingly bespoke financial policy instruments called the Offshore Renewable Energy
Speaker 5: Certificate as a subsidy, and we're going to force all
Speaker 5: the utilities, like the con ads and your utility you're
Speaker 5: paying goes to to have to purchase a certain number
Speaker 5: of these instruments. These certificates, so that it's kind of
Speaker 5: socializing the cost of the subsidy among electricity consumers. But
Speaker 5: now we've designed this new kind of financial instrument. We
Speaker 5: are augmenting the existing power markets with this as a subsidy.
Speaker 5: Because the power markets weren't enough to attract investors. Then
Speaker 5: we're going to design the competitive auction process to take
Speaker 5: competitive bids. So we say, please, please somebody, Oh my god,
Speaker 5: we want offshore win. Please someone come and build it.
Speaker 5: Here's the subsidy on top of the power markets. And
Speaker 5: whatever forecasted revenues you think you'll make based on your
Speaker 5: forecast of the market price, you get to keep whatever's
Speaker 5: left place your bids. We want to procure it, and
Speaker 5: we'll see which one offers the best price for us
Speaker 5: the state. Now that is the kind of deregulated or
Speaker 5: restructured market approach this. Now let's look at Virginia, which
Speaker 5: has Dominion as an investor owned public utility. Virginia passes
Speaker 5: legislation we want offshore win. They then just task the
Speaker 5: public utility to build offshore wind Dominion. Then it doesn't
Speaker 5: need to No one needs to design all these additional subsidies,
Speaker 5: These additional markets or auctions or anything. Now, the State
Speaker 5: Public Utilities Commission just needs to be working in tandem
Speaker 5: with Dominion Energy to kind of approve whatever investments they
Speaker 5: think are needed, determine what's prudent of those investments, what
Speaker 5: they're allowed to socialize to the customers. And they have
Speaker 5: such a scale it's actually the largest of all the
Speaker 5: Atlantic Coast offshore wind projects by a fairly large margin.
Speaker 5: And because of the economies of scale here, well that
Speaker 5: you mentioned the ship. One of the major kind of
Speaker 5: supply chain issues that offshore wind projects are facing is
Speaker 5: there's not enough ships. Because there's this law that Jones
Speaker 5: Act from one hundred years ago that says it's a
Speaker 5: common Yeah, everyone mentions it, and everyone just acts like
Speaker 5: there's no legitimate basis for that. I'm not going to
Speaker 5: make that argument. That's a fact regardless. So there's not
Speaker 5: a lot of ships. So Dominion just says, Okay, we
Speaker 5: know we can recoup the costs of all this stuff
Speaker 5: because we're a public utility, a regulated monopoly utility. So
Speaker 5: we're just going to build a ship. And just a
Speaker 5: couple of weeks ago that ship was built and it
Speaker 5: sailed out of a port in Texas. It's called the Shribda. Yes,
Speaker 5: like Scilla and Shribdis, you know, questionable sea monster naming
Speaker 5: for your offshore win vessel. But now they can keep
Speaker 5: this project going despite what kinds of cost increases there
Speaker 5: are with supply chain issues and so on, Whereas in
Speaker 5: New York State, a lot of the contracts that were
Speaker 5: the results of these competitive processes had to be canceled
Speaker 5: because supply chain problems and other issues meant that the
Speaker 5: projects at the agreed upon contracts and subsidies were no
Speaker 5: longer profitable, and the state said, wholloa, we're not going
Speaker 5: to let you renegotiate the price. We're canceling it. Rebid later,
Speaker 5: all right, So what are the people of New York
Speaker 5: left with? Then?
Speaker 2: Tracy and I were just talking earlier today about how
Speaker 2: the Jones Act has probably now come up on like
Speaker 2: twenty episodes, but we've never actually done a proper Jones
Speaker 2: Act episode, and now I think we'll just never do one,
Speaker 2: so it can be this running joke of never having
Speaker 2: done a Jones Zach episode. Matt, I want to go
Speaker 2: back to you. You know, you said something that certainly
Speaker 2: rings true to me. In fact, I brought up recently
Speaker 2: on another episode, do you say the political left pushing renewables,
Speaker 2: the certain the fetishization of the smallest beautiful. I sort
Speaker 2: of put it as like the more bucolic forms of
Speaker 2: energy solar and wind. But what is the problem with
Speaker 2: relying on solar wind? Because as far as I can tell,
Speaker 2: when I look at charts, and especially when you augment
Speaker 2: them with batteries, it looks like we're installing more and
Speaker 2: more and more. Why is that not the path? If
Speaker 2: we're installing more under the existing market structure, why is
Speaker 2: that not the path towards decarbonization decarbonizing the grid?
Speaker 6: Well, it's certainly part of the path in one sense.
Speaker 6: We are trying to figure it out. But the intermittency
Speaker 6: issue is still an issue. You know, it's you know,
Speaker 6: you'll see headlines like once I remember the UK and
Speaker 6: the Financial Times that it was like sixty six percent
Speaker 6: of the energy was coming from wind one week, But
Speaker 6: if you read the whole article two weeks before that,
Speaker 6: two percent what's coming from wind?
Speaker 5: Right?
Speaker 6: And so there are challenges to what they call firming
Speaker 6: that intermittency, and you know, you can do some with
Speaker 6: lithium batteries. Those batteries can only last about four to
Speaker 6: eight hours, so there's really still a challenge of long
Speaker 6: duration energy storage that we're still told we're sort of
Speaker 6: a couple of years away from. But obviously solar and
Speaker 6: wind are going to be part of the decarbonization equation.
Speaker 6: One thing our writing has tried to point out is
Speaker 6: that because of this deregulation process, and because of very
Speaker 6: specific policy on the part of the United States to
Speaker 6: incentivize renewable energy production with tax credits, it's virtually ensured
Speaker 6: that all the solar and wind development, nearly all, is
Speaker 6: being developed by the private sector and by these independent
Speaker 6: power producers who are sort of dislodged from the old
Speaker 6: utility system. So one issue we have is that the
Speaker 6: large majority of solar and wind development, independent power producer
Speaker 6: development are kind of just these capitalists who are separated
Speaker 6: from the kind of social good of the utility system,
Speaker 6: where they kind of have to sort of, again like
Speaker 6: the Dominion case, justify their investments to a public commission
Speaker 6: and kind sort of try to integrate their investments into
Speaker 6: a sort of larger public infrastructure. No, they're just scattered
Speaker 6: capitalists trying to compete with each other to sell renewable
Speaker 6: energy into the grid, and as Brett Christopher's book has
Speaker 6: pointed out, you know, it's actually quite hard for these
Speaker 6: sort of scattered renewable producers to actually make profits on
Speaker 6: these complicated wholesale markets. So we think solar and wind
Speaker 6: that's going to be a crucial part of the equation,
Speaker 6: but unfortunately the investment model for it so far has
Speaker 6: been more aligned with these quite chaotic and quite fragmented markets.
Speaker 6: And so trying to plan a whole sort of decarbonization
Speaker 6: of the whole grid would really be about trying to
Speaker 6: integrate solar and wind with nuclear and geothermal and long
Speaker 6: duration storage, and that again requires a much more central planning,
Speaker 6: much more of this kind of socialized investment model. And
Speaker 6: I would just add on to what Fred said earlier.
Speaker 6: The utilities do have a socialized model of investment, which
Speaker 6: is really what you need if you want to grow
Speaker 6: the system rapidly, but they socialize it through the rate base,
Speaker 6: through rate payer financing, which is actually kind of a
Speaker 6: pretty regressive form of financing because it's coming from the customer.
Speaker 6: And that's one reason why you're not going to find
Speaker 6: a lot of people who love their utility and sort
Speaker 6: of really love getting those utility bills. So we actually
Speaker 6: advocate that the most progressive way to finance this kind
Speaker 6: of investment, in the socialized way would be more towards
Speaker 6: progressive taxation and actually, you know, taxing the rich more
Speaker 6: to actually fund this kind of essential public infrastructure that
Speaker 6: really all of society needs. And it shouldn't be that
Speaker 6: the poor are paying the same rates as the rich
Speaker 6: and that's what's financing our decarbonization of electricity. We should
Speaker 6: have a much more progressive sort of tax approach to
Speaker 6: that investment.
Speaker 5: I'd like to jump in on this question of renewables
Speaker 5: and why not have them. I think sometimes if you
Speaker 5: advocate for big things like nuclear, you can be put
Speaker 5: in a box where you're a NeuPro you hate renewables,
Speaker 5: And that might describe some people, but for us, our
Speaker 5: concern is that by restructuring the entire way that the
Speaker 5: electricity sector is organize and the way revenues are accrued
Speaker 5: and all that in finance in the interest of supporting renewables,
Speaker 5: that's what we think the problem really is. It's not
Speaker 5: so much the fact that they're there, it's the fact
Speaker 5: that things are being reorganized to promote them, and then
Speaker 5: let's just kind of ignore the fact that it also
Speaker 5: has led to an explosion of natural gas power everywhere.
Speaker 5: Because when you have these markets, if you're forecasting some
Speaker 5: high wind output and then high wind output doesn't come,
Speaker 5: something changes. You need a really liquid market of traders
Speaker 5: and others who are ready to jump in and produce
Speaker 5: the power and sell to whoever was banking on that
Speaker 5: wind power to be there. So it's like the desire
Speaker 5: to integrate them at such a huge scale is what
Speaker 5: brings the restructuring that we're saying is maybe not the
Speaker 5: wisest thing.
Speaker 2: Tracy, this was like a light bulb moment for me
Speaker 2: at some point because I remember at the start of
Speaker 2: my career, I remember the Pickens plan and T. Boone
Speaker 2: Pickens was like this big start advocating all this wind,
Speaker 2: and I like, I didn't really get it because I
Speaker 2: was like, I thought you were a fossil fuels guy.
Speaker 2: Why are you advocating wind? And only years later did
Speaker 2: a click that this idea of natural gas as the
Speaker 2: compliment for wind and that when the wind isn't blowing,
Speaker 2: then you're gonna need T.
Speaker 4: Boon's natural gas.
Speaker 2: But this is one of those things that took me
Speaker 2: many years to understand, like why it was him that
Speaker 2: was advocating so much wind power.
Speaker 3: Yeah, I guess in retrospect it was obvious, Yeah, but
Speaker 3: I wasn't gonna Yeah, And I was reading the piece
Speaker 3: that Matt and Fred did, and I think there's an
Speaker 3: estimate in there that companies contracting for renewables in fact
Speaker 3: draw between twenty percent and fifty percent of their annual
Speaker 3: electricity from the regional grid, partially from fossil fuels like
Speaker 3: nat gas that you just mentioned. So, you know, we've
Speaker 3: gone through the sort of downsides of the current model,
Speaker 3: which seems to be this weird combination of both regulation
Speaker 3: and deregulation. How would you design a system such that
Speaker 3: it moves away from where we are currently, Like, what
Speaker 3: would the ideal system to address some of these issues
Speaker 3: actually look like?
Speaker 5: To you?
Speaker 6: It sounds almost like too nostalgic, But part of me
Speaker 6: wants to say, we really should just return to that
Speaker 6: model of public utility law and regulation of the electricity system,
Speaker 6: because again, I think we've kind of lost touch with
Speaker 6: what it took to build a grid and build a
Speaker 6: society like we did in the twentieth century, and it
Speaker 6: was very clear that electricity was this sort of underpinning
Speaker 6: societal scale infrastructure that was sort of foundational to modernity
Speaker 6: and foundational to the thriving of all of society. And
Speaker 6: so we really thought, like, okay, for the public good,
Speaker 6: we've got to sort of plan and charge one single
Speaker 6: into the utility to kind of take control of that
Speaker 6: system and plan its investments to integrate it for society.
Speaker 4: And then, of.
Speaker 6: Course, once the grid was built and once all that
Speaker 6: growth of the post war era was starting to stagnate,
Speaker 6: people kind of became disillusioned with that model, right, But
Speaker 6: we are in a different context here in the twenty
Speaker 6: first century.
Speaker 4: We have to return to growth.
Speaker 6: And you know, in the post World War two era,
Speaker 6: the utilities had something they called it the grow and
Speaker 6: build strategy because they knew they could actually make profits
Speaker 6: on actually growing their investments. And that was a real
Speaker 6: specific strategy. The more they invested in the grid, the
Speaker 6: more they could get profits and get their investments sort
Speaker 6: of approved by the public utility commissions. But we are
Speaker 6: back right here in twenty twenty four. We're back to
Speaker 6: a need to grow and build a grid, and we
Speaker 6: you know, some say we got to triple it or
Speaker 6: quadruple it, and to do that we need a totally
Speaker 6: different institutional model of investment, and the public utility one
Speaker 6: it worked, you know, and you know, again I've mentioned
Speaker 6: Brett Christopher's book again. You know, if the problem is
Speaker 6: that renewable energy production is not profitable and these scattered
Speaker 6: independent power producers can't make profits, well, one thing about
Speaker 6: the utility model is the whole system was about guaranteeing
Speaker 6: profits to the investor. It is guaranteeing a rate of
Speaker 6: return on investments that were approved again by the Public
Speaker 6: Utility Commission that has to kind of look at the
Speaker 6: utilities books and open them up and kind of evaluate
Speaker 6: whether or not the investments make sense and whether or
Speaker 6: not the rates makes sense for the consumer. And so
Speaker 6: it seems to me that was a really good model
Speaker 6: in terms of growing.
Speaker 4: The system and investing in the system.
Speaker 6: And not many people, I think are thinking today about
Speaker 6: returning to it. But I think that's because a lot
Speaker 6: of the people talking today have forgotten what it takes
Speaker 6: to build a societal scale infrastructure like we did in
Speaker 6: the middle of the twentieth century.
Speaker 3: Just to play Devil's advocate on this point, how would
Speaker 3: you address the problem of regulatory or political capture in
Speaker 3: that scenario, because this came up in the early twentieth century,
Speaker 3: which you already sort of touched on. But when I
Speaker 3: think of the electricity system in a place like Connecticut,
Speaker 3: a lot of it seems to be ever sourced going
Speaker 3: to its regulator and saying, WHOA, we need to raise
Speaker 3: rates and distribution costs because we're going to make billions
Speaker 3: of dollars worth of investment in renewable energy or in
Speaker 3: the grid or whatever. How do you avoid that particular
Speaker 3: risk because this seems to be what actually bothers people
Speaker 3: when it feels like there is a monopoly and they
Speaker 3: can basically raise prices as much as they want.
Speaker 5: Yeah, I would say one thing to keep in is
Speaker 5: that competition versus monopoly. This isn't Amazon having a monopoly.
Speaker 5: This isn't Google having a monopoly. This is a regulated
Speaker 5: monopoly where the retail prices and the investments are happening
Speaker 5: in accordance with some kind of nominally happening in accordance
Speaker 5: with some kind of state public process. With regulatory control,
Speaker 5: you might even have commissioners who are directly elected in
Speaker 5: some states and other places they're appointed by governors. But
Speaker 5: we would never say there's no such thing as regulatory
Speaker 5: capture and corrupt dealings with the utility model. As we
Speaker 5: mentioned in our recent essay First Energy, a utility in
Speaker 5: Ohio has been just embroiled in this horrible scandal where
Speaker 5: there was like bribery with the government to support certain
Speaker 5: initiatives they wanted. I mean that stuff does exist, But
Speaker 5: what I would say is that generally we need more
Speaker 5: public interest in the goings on of the public utilities commissions,
Speaker 5: journalism around what's happening there. I mean, there's a reason
Speaker 5: on your show you're talking so much about clean energy
Speaker 5: growth and decarbonization. This is a mode of politics that
Speaker 5: is increasingly pretty prevalent, pretty significant, very high dollar volumes
Speaker 5: of investments being discussed, and I think it warrants a
Speaker 5: kind of renewed democratic focus on exactly these sorts of things.
Speaker 5: But also I would say that the opposite model, just
Speaker 5: increasing competition doesn't mean you don't have like giant market
Speaker 5: power and political dominance. The largest renewable energy developer in
Speaker 5: the country's next era next era is this big company
Speaker 5: that has subsidiaries that are public utilities, like Florida Power
Speaker 5: and Light. They're being market competition doesn't mean you don't
Speaker 5: have these giant firms that then for all that regular
Speaker 5: vanilla reasons can kind of influence politics the way they've
Speaker 5: always been able to. So it's not that like utility
Speaker 5: means that, and competition means pure, beautiful price, natural price
Speaker 5: competition and so on.
Speaker 6: And it's also that the private model itself, like we
Speaker 6: we try to make clear like we think the utility
Speaker 6: model is preferable, But the ultimate, I think problem is
Speaker 6: in the early twentieth century, we did decide that we're
Speaker 6: going to hand over this crucial public infrastructure as a
Speaker 6: monopoly to private capitalists who ultimately are answerable to their
Speaker 6: shareholders and want to seek a return on their investment
Speaker 6: above really the public interests, and they're regulated for that reason.
Speaker 6: But ultimately, I think that was kind of at the
Speaker 6: root of a lot of our problems that we have
Speaker 6: with utilities, because they are they do seek profits above
Speaker 6: the public interest, they do capture the public utility commissions,
Speaker 6: and they are correct. So that's why in a lot
Speaker 6: of our writing, we really do think ultimately the ideal
Speaker 6: model for us is public ownership of this public utility, Right,
Speaker 6: Why are we handing over public utilities to the private
Speaker 6: for profit sector. Why aren't we doing something like the
Speaker 6: Tennessee Valley Authority and like these again against the kind
Speaker 6: of left smalls beautiful kind of community scale, local scale energy.
Speaker 6: We like to think about this sort of big public power.
Speaker 6: Examples of the Tennessee Valley Authority that you know is
Speaker 6: not running their utility for profit, is planning that utility
Speaker 6: area for their public mission of serving their customers and
Speaker 6: also of decarbonization. They have really decarbonized their generation to
Speaker 6: a significant degree. They're not done yet, but they're developing
Speaker 6: new nuclear which is not happening a lot in the
Speaker 6: private market, as we've talked about. So that kind of
Speaker 6: model of public utilities where it's actual public ownership, I
Speaker 6: think that's the best way to avoid those kind of
Speaker 6: problems you have with the corruption and the kind of
Speaker 6: graft and the private utilities.
Speaker 2: I'm glad you brought up the TVA because I wanted
Speaker 2: to sort of make sure we hit on that. I
Speaker 2: remember first learning about the TVA probably in high school
Speaker 2: when we like did some you know, section the New Deal,
Speaker 2: and then I sort of just forgot about it and
Speaker 2: in my mind, I only think of it in I
Speaker 2: had context, But then I realized it's actually still a
Speaker 2: thing in the almost it looks like the entire state
Speaker 2: of Tennessee or Almost get their power from the ten
Speaker 2: See Vlidy Authority. What was special about the TVA and
Speaker 2: why is it sort of like loom so large when
Speaker 2: they teach school kids about the new Deal? And how
Speaker 2: does it operate today?
Speaker 3: What is it like?
Speaker 2: Is it okay, here's a federally owned electric utility, talk
Speaker 2: to us, like, is it actually delivering on the promise
Speaker 2: of what you both claim that can happen under the
Speaker 2: publicly owned model?
Speaker 5: I am so glad you're asking this question, as perhaps
Speaker 5: the political lefts number one defender of the TVA a
Speaker 5: uniquely positioned to answer it. So as I was saying earlier,
Speaker 5: like we need a mode of politics. Decarbonization so important,
Speaker 5: clean energy growth is really important. There should be a
Speaker 5: lot of public attention on the investments and the actors
Speaker 5: involved in that. Well, back in the Great Depression, that's
Speaker 5: exactly what was going on the kind of major corporate
Speaker 5: villains of the day were the public utilities holding companies,
Speaker 5: these massive organizations of capital into these like pyramid entities
Speaker 5: that controlled electric power utilities across the country. So when
Speaker 5: Franklin Roosevelt FDR was running for office, first in New
Speaker 5: York State and then for a president, really he kind
Speaker 5: of cast the public utilities as these major villains and
Speaker 5: as electricity as this key to modern living that everyone
Speaker 5: was entitled to and that large parts of rural America
Speaker 5: were not getting. So the TVA came out of that
Speaker 5: kind of political context. You have the Great Depression, you
Speaker 5: have a administration that was really interested in big, bold,
Speaker 5: new experiments to address crisis, and the TVA was sort
Speaker 5: of this way of adopting a model that was first
Speaker 5: sort of starting to be set up in New York State,
Speaker 5: where FDR was governor beforehand, in the New York Power
Speaker 5: Authority of saying, hey, here's all this federally owned river
Speaker 5: systems where the federal government has control for navigation and
Speaker 5: other reasons like that, let's try to develop this part
Speaker 5: of the country by focusing on controlling the devastating flooding
Speaker 5: of the river. There was a nitrates production facility that
Speaker 5: was being built for World War One that was kind
Speaker 5: of being disused that was attached to a hydro electric
Speaker 5: power station on a dam on the Tennessee River, and
Speaker 5: so that was a key resource that the TVA was
Speaker 5: being built around. But ultimately it was kind of a
Speaker 5: regional planning to develop that economy and bring modernity to
Speaker 5: an impoverished region which was like stricken with malaria at
Speaker 5: the time, and as I said, lots of devastating floods.
Speaker 5: So that was how the TVA came about. But it
Speaker 5: really was simultaneously about this kind of attack on the
Speaker 5: private utilities companies. I mean, we say it's kind of confusing.
Speaker 5: Public utility is the notion of like a regulated utility,
Speaker 5: but you know they're not publicly owned necessarily. So the
Speaker 5: TVA very quickly became kind of a weapon, an aggressive
Speaker 5: attack on the utilities to try to deliver cheaper power
Speaker 5: for electoral reasons, but also just to help develop the
Speaker 5: economy and bring more power to to people there. Bonneville
Speaker 5: Power Administration in the Pacific Northwest was built up for
Speaker 5: the exact same reason and the exact same model. FDR
Speaker 5: had a dream of having four different areas of the
Speaker 5: US would have such systems. But it really was like
Speaker 5: this fascinating time where it was kind of build up
Speaker 5: this deeply technical, institutionally complicated, technically complicated system like within
Speaker 5: the state, have bureaucrats and kind of wonks like figure
Speaker 5: this out and build this and put people to work
Speaker 5: doing it. And the fact that it survives today in
Speaker 5: a kind of different form. Today, it's really more of
Speaker 5: just a I mean, it's not just a but is.
Speaker 5: I like to think of it as it's America's major
Speaker 5: state owned enterprise as a power company. But it still
Speaker 5: does have some kind of regional environmental stewardship goals that
Speaker 5: it has to satisfy and it has to look after
Speaker 5: the river systems and so on. But yeah, it's really
Speaker 5: from New Deal experiment and regional development bringing modernity to
Speaker 5: the masses. Fast forward to now state owned enterprise that
Speaker 5: is a political instrument in some sense.
Speaker 6: Their slogan was electricity for All. It sort of sounds
Speaker 6: like a Bernie Standers slogan, and you know it was
Speaker 6: because the private capitalist utilities didn't see it as profitable
Speaker 6: to serve everyone, right, And it's that commitment to this
Speaker 6: electricity system is this essential public service and that everyone
Speaker 6: should be able to have it. And again, just to
Speaker 6: go back to today, I mean, there's all this realization
Speaker 6: that we need a lot of growth in electricity.
Speaker 4: But there's also some data centers and AI.
Speaker 6: Producers who sort of think like, well, maybe we can
Speaker 6: just build like a big micro nuclear reactor for our
Speaker 6: own data server, like in sort of dlink from the
Speaker 6: grid entirely right, And I think that kind of notion
Speaker 6: that we can just sort of hunker down and produce
Speaker 6: our own electricity isolated from the system is a real
Speaker 6: danger in that TVA model of like, really, we need
Speaker 6: to build a system that is for everyone, something we
Speaker 6: need to bring back.
Speaker 2: Bright and Matt, thank you so much for coming on, oddline.
Speaker 2: I believe I am marginally closer to understanding a bit
Speaker 2: about how the grid works and how he got here.
Speaker 2: So really appreciate you both coming on.
Speaker 4: Thanks so much.
Speaker 2: Yeah, thanks a lot, Tracy, I really enjoyed that conversation.
Speaker 2: I think to start, the simple thing between this and
Speaker 2: the Brett Christopher's episode we did is that the uncertainty,
Speaker 2: the lack of off take, etc. It clearly seems like
Speaker 2: a real issue. We know we need the power, we
Speaker 2: know we want power from decarbonized sources, Yet the at
Speaker 2: least as of now, the market systems don't quite seem
Speaker 2: to satisfy all things at once, right.
Speaker 3: I think Brett described it as that sort of toxic
Speaker 3: mix of a huge outlay, a very big investment for
Speaker 3: generally a low expected return, with a dash of volatility,
Speaker 3: an uncertainty over what electricity prices will actually be, and
Speaker 3: so the model just doesn't work for financing a lot
Speaker 3: of these things.
Speaker 2: It's really interesting too, because when we talked to Brad,
Speaker 2: obviously it was in the context of the constraints on
Speaker 2: ongoing renewables growth, But that makes a ton of sense
Speaker 2: to me with nuclear, Right, if the entire thing is
Speaker 2: like the assumption is that once you turn on the
Speaker 2: plant and it's constructed, it's supposed to run forever or
Speaker 2: decades and decades. But if you have periods where the
Speaker 2: sun is very shiny for a long time, or there
Speaker 2: is a tremendous amount of wind and they're literally getting
Speaker 2: zero revenue during those periods, you could see why. You know,
Speaker 2: people talk about the environment and we forgot how to
Speaker 2: do this, and maybe there's some thing, but maybe it
Speaker 2: simply does not pencil out to make such a gigantic
Speaker 2: upfront commitment.
Speaker 3: Yeah, Well, I think the other thing that sort of
Speaker 3: touches on is I do think, you know, I can't
Speaker 3: remember if it was Matt or Fred who was talking
Speaker 3: about like the need for more of a democratic focus
Speaker 3: on this particular issue, but I do think it kind
Speaker 3: of touches on I guess an innate sense that a
Speaker 3: lot of electricity consumers i e. Almost everyone in America
Speaker 3: actually has at this point in time, which is going
Speaker 3: back to this idea of sort of the worst of
Speaker 3: both worlds where you have like these big utilities who
Speaker 3: are charging you know, a lot for distribution, and then
Speaker 3: you have the independent power generators who maybe are more
Speaker 3: competitive in their pricing, and then you have the financialization
Speaker 3: of energy markets combined. And it doesn't seem to be
Speaker 3: and I think there were some stats in the research,
Speaker 3: but it doesn't seem to have actually brought down electricity
Speaker 3: costs that much. And then secondly, it doesn't seem to
Speaker 3: have delivered on the transition to renewables or decarbonized energy
Speaker 3: at scale at the scale needed.
Speaker 5: Well.
Speaker 2: I thought it was interesting because just now you said
Speaker 2: electricity consumers, which of course we are, but the industry
Speaker 2: doesn't even consider us consumers. They call us rate payers,
Speaker 2: which I think is a very telling thing that the
Speaker 2: consumers of electricity, unlike in every other market, are not
Speaker 2: considered consumers. We're considered rate payers. And I think it
Speaker 2: speaks to exactly your point that there's this sort of
Speaker 2: pretense of a market system for energy, but at the
Speaker 2: end of the day, we're not like say, consumers of
Speaker 2: cars or soda or sneakers were ratepayers of electricity.
Speaker 3: Yeah, we are beholden to the power of electricity. Ooh,
Speaker 3: power of electricity. There we go. Shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guests Fred Stafford He's at Fred Stafford DCS
Speaker 2: and Matt Huber at Matt Huber seventy eight. Follow our
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