Guest essay by Larry Hamlin
Pacific Gas & Electric has won a huge legal decision from the bankruptcy court agreeing with its position that in can proceed to renegotiate $42 billion dollars in costly energy power purchase contract commitments including many renewable energy contracts.
This decision will likely be appealed but for the time being the $42 billion dollars in power purchase energy contracts with suppliers including renewable energy projects with NextEra Energy Inc., Consolidated Edison Inc. and Berkshire Hathaway Inc. are under challenge and could be subject to complex and lengthy renegotiations as a part of PG&E’s bankruptcy proceedings which not only might delay these planned renewable contracts but could also significantly jeopardize California’s future renewable energy use time table.
The Wall Street Journal noted the following regarding how this ruling came about and its significance concerning PG&E’s future renewable energy contracts.
“The ruling by Judge Dennis Montali, who is presiding over PG&E’s chapter 11 proceeding, may allow the company to get out of $42 billion in power-purchase agreements, including many pioneering wind and solar deals that are now well above current market prices.”
“PG&E said it was pleased with Friday’s ruling, but appreciates concern that its bankruptcy will slow progress toward promoting clean energy. The company said it has yet to decide which contracts it will keep and which it will reject.
Bankruptcy gives PG&E the freedom to get out of power deals that it considers unfavorable, as long as a judge agrees. But the Federal Energy Regulatory Commission, which regulates interstate power markets, has asserted it also has authority over PG&E’s contract decisions.
In his ruling late Friday, Judge Montali disagreed, finding that FERC overstepped its authority in threatening to overrule his decisions on PG&E’s power-purchase agreements. FERC had sought to have the bankruptcy judge agree to side-by-side jurisdiction, which would have made it tougher for PG&E to get out of deals.
PG&E has $34.5 billion worth of renewable-energy contracts for electricity deliveries between now and 2043, according to a filing with FERC. Rejecting those with above-market prices could save the company $1.4 billion annually, according to Moody’s Investors Service.”
A recent study by the Texas Public Policy Foundation has exposed how the federal renewable energy Production Tax Credit (PTC) schemes cost the U. S. government billions of dollars in revenue subsidies with those benefits provided to a small number of large energy companies which own and operate renewable energy projects.
The study noted the following regarding the huge financial impact to U.S. tax payers regarding this climate alarmist driven subsidy scheme falsely pushing unnecessary demands to increase use of costly and unreliable renewable energy:
“The federal production tax credit (PTC) for wind energy producers has cost the U.S. government billions of dollars in revenues, distorted energy markets, and benefited just a few large corporations, a new study reports.
The federal government imposed the PTC in 1992 in an effort to promote renewable energy. The PTC, currently 1.9 cents per kilowatt hour for the first 10 years of a wind farm’s operations, has been extended several times by Congress. It is scheduled to begin phasing out at the end of 2019. The PTC and tax depreciation allowances cover more than 50 percent of the capital costs of a typical wind facility.”
“The biggest recipient of PTC largesse is NextEra Energy, the nation’s largest wind power producer, with approximately 10,000 wind turbines and annual revenues of $17.5 billion, reports the study by TPPF Senior Fellow Angela Erickson. More than $5.7 billion in taxpayer dollars flowed to NextEra Energy courtesy of the PTC between 2007 and 2016, making NextEra “one of the most subsidized Fortune 500 companies,” writes Erickson.”
“Over the decades, the PTC has caused market distortions, including instances of “negative pricing,” where producers operate wind turbines when the electricity they provide is not needed, simply to receive PTC revenue.
“The PTC’s $24 per megawatt-hour credit sometimes results in wind energy producers paying electricity suppliers to take their energy rather than turning off wind turbines during surplus energy hours (e.g., early mornings when people are sleeping),” the study states. “By keeping wind turbines running, producers will receive the tax credit even though the grid does not need the energy. The resulting low prices may harm the reliability of the grid by reducing the incentives for investing in energies that can supply baseline generation.”
“With the PTC set to be phased out by the end of 2019, companies are in an aggressive race to erect as many wind turbines as possible across the nation. Corporations that start construction of wind facilities before December 31, 2019 will continue to receive PTC tax credit payments until December 2029.
As a result, “the federal government will transfer at least an additional $48 billion in PTC subsidies to owners or financiers of commercial wind farms,” through 2029, Erickson reports.”
NextEra Energy Inc. which had pushed FERC to intervene in the PG&E bankruptcy proceeding along with other renewable energy companies impacted by this ruling could experience significant revenue impacts to their businesses as a consequence of the lost PTC subsidies.
The PG&E bankruptcy situation regarding these PTC renewable energy contracts is providing unwanted visibility exposing the huge multibillion dollar subsidy benefits being provided to large companies building costly and unreliable renewable energy projects which impose huge financial tax burdens upon the public while degrading the reliability, stability and cost effectiveness of the country’s electric system.
I know I have beaten this horse to death and it’s almost a shame that I still have to do this but where is the cheapest energy on the planet now? I mean, the renewable acolytes never tire telling us that their energy is cheaper than anything else and that this is the only power production capacity that should ever be installed again. But if they are so very cheap, how comes that PG&E needs to unload first of all those expensive renewable contracts? If renewable would really be as cheap as their proponents claim, PG&E should try to unload all other contracts and keep all the renewable contracts. But that’s not what they do. Do me a favor – next time one of those renewable types talks about cheap renewable energy, rub this article under his nose. Know what – I know just how they will react. That’s just one more mean spirited ploy by the fossil industry. But here, it’s renewables that look like fossils.
“the renewable acolytes never tire telling us that their energy is cheaper than anything else and that this is the only power production capacity that should ever be installed again. But if they are so very cheap, how comes …”
… most developing countries are investing in coal power plants instead? Surely they’ve done the cost studies and wouldn’t overspend their limited resources.
We seem to live in strange times.
Companies providing essential services like energy supply and air transport are kept afloat by the bankruptcy courts. Yet it was court-enforced decisions of government that destroyed the ability of these companies to make profits.
If California is the trend setter it has been the last 40-50 years for renewables, this would be the beginning of the end for the massively subsidized renewable energy market, at least in the USA South West. It is coming anyway, as evidenced by the messaging that these subsidies will be phased out within 10 years which would mean not being able to replace themselves due to horrible economic returns if not subsidized. The uselessness of wind power when their effective limited life span for many of these projects also expires if it isn’t economical to be able to pay for their own eventual replacement.
This bankruptcy should accelerate that by allowing the renegotiation of the original contract to a lower price which would in large part cause any newer projects to accept the lower price that has just been agreed to. Investors like Warren Buffet would bail on putting any new money in if the wholesale price is reset especially knowing the subsidy is coming off eventually. Which is good, especially for wind since it is junk electricity anyway, and just causes a lot of disruption on the grid every time the wind gusts. Priority access to the grid for this garbage power and the premium price it commands should collapse, and hopefully sets the real price paid for a non dispatchable junk power product. Same for solar, while a bit more predictable for its energy profile, is still a junk power that can’t lead the utility like the synchronized spinning reserve that it requires for its own generation. Maybe the world is now unfolding like it should, and starting in California where much of this renewable nonsense started anyway. This will be a real chill over the renewable energy market, and a deserving one at that. As someone else commented upthread, couldn’t have happened to a nicer bunch of people. But it’s a shame it has to take a bankrupt private utility to do so, which was bankrupted on a fake claim of CAGW causing the fires in the first place.
NextEra Energy NYSE: NEE.
$201.98/shr, $98 Billion market cap. Down ~1% today. Expect further downward pressure due to this ruling.
AQR Finance is a hedge fund holding about $500million in stock on NEE.
Harvesting tax dollars, not wind.
institutional investors own 79% of NextEra Energy.
Far past time to end the PTC.
Per wiki:
NextEra Energy, Inc. is a Fortune 200 energy company with about 45,900 megawatts of generating capacity, revenues of over $17 billion in 2017, and about 14,000 employees throughout the United States and Canada.
“Big Wind” indeed.
Renewable energy as the sole means of electricity will be a disaster. Stop this insanity!!
Does this mean we get the tax credits/revenue back in the Treasury for social spending needs?
Question: Lets say that PG&E do pay the $42 billion fine, or some part thereof.
Who gets that money? is it:
1. The government.
2. The people who lost family members.
3. The people who suffered material loss due to the fire.
4. The lawyers who filed suit.
The government.
Only the government can issue fines, all other need judgements.
And since the BK will discharge any liability for the fire, that’s not going to happen.
Legal judgements ate generally not dischargeable, although if a plaintiff filed bankruptcy then the lawsuit is an asset that the bankruptcy court can take to help make the creditors whole.
One wonders if the Greens organization, whatever that is, is Communist, or Capitalistic . Perhaps a bit of both.
MJE VK5ELL
When all these wind farms reach EOL what’s going to cost to remove them and who’s going to pay for it? Did the original permits include a removal performance bond?
It won’t be EOL that necessarily does them in, if the owning companies fail to ‘pay up’ for normal preventative maintenance, or won’t ‘pay up’ for repair work their end of “life” will arrive just that much sooner!
Which green shoot firms are most exposed to PG&E renegotiating their contracts?
When I heard that lawyers were planning to sue PG&E into bankruptcy, I expected this to happen.
PG&E could not remove the fuel build up under their power lines because of misguided environmental regulations. This is a California problem.
Because of the fuel buildup, there were fires. Lawyers decided to sue PG&E rather than the environmental groups which are responsible for preventing the clearing fuel buildup.
The lawsuits forced PG&E into bankruptcy and all contracts they held prior to bankruptcy are subject to renegotiation. This includes the rooftop solar contracts which have PG&E paying for PV power which they then have pay the grid to take during the peak PV production times during the early afternoon. Then PG&E has to pay for more ex-Cali grid power in the evening when usage is highest and PV production is very low.
The renegotiation of PG&E”s renewables contracts could blow the lid off of the renewables fallacy. A system that overproduces power 6 hours before peak usage is not sustainable. This unsustainability is made even worse when the system produces almost no power during peak usage.
The beneficiaries of this $billion dollar tax payer heist , including bought California politicians are running out of runway . It’s about time . How much $$ did the newspaper owners and writers get for pumping the tires of the scam ?
Amber
Well, Hillary spent over 1 billion dollars last primary season and election losing her coronation to “her” dictator-in-chief position. And EVERY dollar of that went to local press outlets, national press outlets, campaign events that went to local and national press attendees, and for actual political ads in local and national press sales accounts.
Those “renewable ” contracts will be tied up in the courts for a decade .
The crooks who made off with the bribes could care less so someone else will be holding the bag . Taxpayers ….again .