By Jim Clarkson — June 21, 2022
“… the best arrangement for utilizing market forces in electricity … would be the spontaneous, voluntary, indigenous, bottom-up approach for the development of market relationships rather than government mandates.”
“The proper aim of consumer groups and free market advocates should be not to force utilities to allow others to use their private property but to reduce the impediments to competition between existing and new suppliers.”
The prevailing goals sought by those seeking reform in the power market are mandated access and common carriage for state regulated utilities. However, that is not the best arrangement for utilizing market forces in electricity. Far better would be the spontaneous, voluntary, indigenous, bottom-up approach for the development of market relationships rather than government mandates.
The state of Georgia has a system that can be such a free, prosperous market. Ninety different utilities in the state share the high voltage system in common. There is active and vigorous competition for new customers with a connected load of 900 kilowatts or more in most of the territory. Just drop any minimum load requirements and allow the choice of serving utility to be perpetual instead of a one-time choice.
This sharing of transmission facilities has precedent with petroleum pipelines. Retail gasoline and diesel is very competitive, behind which are transport sharing arrangements for intrastate and interstate pipelines. It was in their common interest to avoid duplicate, single-owner pipelines. This came about without regulation in contrast to the interstate natural gas pipelines that developed under regulation.
The development of the Georgia transmission sharing system has a unique history and shows how the lack of government interference allows beneficial market relationships to develop. By the 1970s consortium of electric membership cooperatives and municipal electric systems already had partial ownership in certain generating plants with Georgia Power.
But Georgia Power began construction of a nuclear plant and soon ran into serious cost overruns. At that time the doctrine of “used and useful” was in effect for allowing capital recovery of new generating assets. Despite some efforts by the state regulatory agency to provide some relief, the utility faced bankruptcy. In a period when interest rates were high Georgia Power sought partnerships with the EMCs and Munies that had access to low-interest borrowing to bailout their problem. The potential partners had some transmission assets and demanded that all transmission be accessible for all the owners of a common system.
This was a negotiated, not mandated, solution to the various problems and the different interests of the parties. This agreement was not ordered by the state regulatory agency or by a legislative directive.
The sharing agreement happened in 1974 when the court-ordered breakup of AT&T included the common mandated carriage by non-owners of the AT&T and “Baby Bells” long distance systems. Unfortunately, this mandated carriage with recovery of stranded assets model was followed in wholesale electricity market.
In Georgia there are 47 municipal power systems. Long ago these utilities attracted cautious big power users by agreeing to allow them to switch to the big investor-owned utility if they found municipal service was unsatisfactory.
The 39 EMCs in the Georgia Power territory (there are three on TVA) have also make the switch option available to large new customers. In fact, a number of customers have indeed exercised this option. The Georgia Public Service Commission in recent years has declared, at Georgia Power’s urging, that such contract provisions are not allowed. However, the court case law which trumps the PSC has yet to be overturned.
Georgia municipalities, like Georgia Power, have a strategy of going long on power generation in hopes of selling extra generation off-system. The wholesale group for municipals has successfully sold their share of current very costly Vogtle nuclear capacity under construction to other utilities in Florida and Alabama for 20 years. This relieves them of collecting capital recovery for the nuclear plant and thereby can offer lower bids for competitive new customers.
Georgia Power, meanwhile, adopted a strategy of building more generation than they needed to sell into the wholesale market. The strategy included building cheaper combined-cycle gas-fired plants in their unregulated sister company, while building risky nuclear capacity under almost certain cost-recovery state regulation. However, the wholesale power market is turning to hourly-priced commodity exchanges, and the long run demand does not look good for Georgia Power who must now try to recover unneeded capacity cost from captive domestic customers.
Meanwhile the EMCs adopted a strategy of being short on capacity and being net buyers from the wholesale market. Unlike the high customer density of the munies and of Georgia Power, the EMCs still have room for growth and are gaining far more new customers than the land-locked, flat-growth competitors. EMCs buy from various wholesale suppliers. Individual EMCs are acting like marketers by, in effect, giving their customers access to the wholesale market, which does not tolerate any nuclear surcharges. The EMCs can beat Georgia Power in competitive situations.
The enabling legislation for transmission sharing and serving customers in other distributor’s territories was sponsored by the utilities themselves. It weakens the exclusive franchisee policies in force throughout the rest of the country. This is a demonstration of what could be the polices of the future.
The proper aim of consumer groups and free market advocates should be not to force utilities to allow others to use their private property but to reduce the impediments to competition between existing and new suppliers. Franchisee territories should be completely abolished, and all customers should have the right to pick and change their electric utility. The government action needed is only to get out of the way and let a freed-up market develop. Abolish state and federal utility regulation along with the enabling legislation. Then, going forward. the best utility public policy is no public policy.
Some may worry about the old utility false warning concerning duplicate wiring all over the place. But it is in the mutual interest of the parties to share facilities, including the last mile distribution wiring.
Let’s say a stubborn utility starts losing customers in a subdivision to a neighboring utility with better rates and policies. At first the aggressor will expand its wiring into the incumbent’s territory. The incumbent soon realizes stranded wiring is being created and realizes they can at least get some recovery by selling what would otherwise be abandoned wiring. Or they can agree to sharing as a means of getting partial revenue instead of nothing.
In Georgia the mere fact that customer choice and utility switching exist, even as limited as it is, has a huge impact on the utility behavior and regulatory policies. Because such options exist, utilities try to treat customers like, well, customers.
That’s a good thing–and a potential benefit to survive the ratebase swelling from projects like Plant Vogtle #3 and #4 and the “green” energy overreach.
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Clarkson is founder and president of Resource Supply Management.
Not that thrilled with nuclear, are we? Try a search for “environmental delays for vogtle 3 nuclear power plant” and find out about the “Blue Ridge Environmental Defense League” and other derranged organizations. Sure, Vogtle 3, and other power plants, anticipate environmental resistance, but one complex problem is the various alliances the environmental groups strike up, usually transitory, but nonetheless damaging. Nuke’em!
There was much organized lawfare in the delay of Vogtle, that is certain. But the more significant delays and over-runs were caused by the poor management by the general contractor and the bankruptcy of the company that built the reactor core (added over a year for that to clear up). Then there was the problem of training a nuclear reliable welding cadre and nuclear reliable electricians and keeping them clear of illicit drugs for the duration. Two long stand-downs were related to retraining staff after having to let go a significant number who tested positive for drugs, and then reinspecting all segments of work they had performed on the job looking for any sloppy welds or wiring. Restart of work was slow as the new hires got up to speed at doing a perfect job quickly.
Building a big nuclear power plant is a big, hard job. We’ve mostly forgotten how to do that.
On the other hand, the greens have only gotten better at lawfare.
In July 2021 Georgia Power announced a three-month slip in the anticipated in-service dates to “Q2 2022 for unit 3 and Q1 2023 for unit 4”.
An update from January this year states GP is “on-target” for unit 3 entering service this year in Q3 and unit four Q2 of 2023. In other words, another three month slip.
Here we are just about to begin Q3 and peak A/C season for Georgia; unit 3 in-service would be nice to have.
I recall reading somewhere the latest delays were due to “missing documentation” — another sign of poor management, but I can’t find that reference now.
There are weekly status meetings hosted by the NRC, but these focus on safety issues rather than project schedule. These are open to the public via Microsoft Teams. I think I’ll audit one just to see what if any input there is from anti-nuclear groups.
Heh, heh, heh! Your report is from January 31, 2022 (or January 27, 2022, depending on your viewpoint). But we have this report from February 18, 2022:
Vogtle delayed again
That must have been the later announcement that I remembered but couldn’t find (it mentions missing documentation).
The problem is if you search “Vogtle delayed again” you get too many hits to follow 🙂
Southern Company has no sense of humor. There needs to be a “Vogtle 3 In-Service” countdown clock, which like the nuclear doomsday clock published by the Bulletin of the Atomic Scientists, counts down the days remaining until unit 3 goes online. Then every few months they could reset the clock and add a few more months. Hopefully we don’t keep this up for as long as the BES has been postponing doomday.
Don’t forget the ever changing regulations that can cause sections that have already been completed to be redesigned and re-built.
Ummm…
Not sure I want to allow anyone and everyone to string wire as they want. How many different utility poles do you want running through your neighborhood?
In practice that only occurs at borders between utilities, most being very geographically based. Transmission sharing does occur, but customers might want to check who actually owns the wires going to their house since the company owning the wires will be sure to service their paying customers first in an outage.
In upstate NY we had a situation where there was a single distribution system in our neighborhood (poles/wires) used by 2 different utility companies whose “territory” was strictly geographical We had one provider and two houses down all other homes on the block were mandated to have another (less expensive) provider.
My understanding was that it was possible for a provider to make deals with distant electricity generators and use the common grid and distribution lines. In this instance a municipal “co-op” struck a deal with the Niagara generating company for a lower rate.
That doesn’t happen. Did you read through the end of the article?
Yes I did.
Try reading past “at first the aggressor will expand…” and read the rest of the story. Then get back to us.
What makes you think utilities and people would rather pay more for their own poles and lines, rather than lease out to others? You have a pretty poor idea of how markets and capitalism work in practice. Maybe you ought to lay off the Marxist propaganda.
‘Don’t know if this was/is true countrywide, but back in the olden days of the 1950s and Ma Bell, the telephone company owned the poles in the distribution system and utilities rented space. Utilities installed and owned their own poles for transmission lines (higher voltages).
My favorite common carrier case is the Sintaluta case. It forced a railway to assign boxcars on a first come first served basis. Farmers would load a boxcar with grain and the railway would haul the boxcar to a designated grain terminal at a port. So, that’s simple.
The case with an electrical utility is not that simple … at all. It would be simpler if the supplier could put its electricity into the lines at one place and take all of it off the lines at another place at the same time, but that’s not how it works.
How it works is the electrical utility gets all these kilowatt-hours whenever the wind blows and has to figure out what to do with it. Applying common carrier doctrine to that is a big stretch. Of course the politicians and legal system don’t understand that.
Undue hardship comes to mind, as does legal fiction. It seems to me that both apply when you’re subjecting an electrical utility to common carrier status.
I am a residential customer of one the the 39 Georgia Electric Membership Corporations (EMCs). My last bill was $0.117/kWh + 6% sales tax. That’s it, no other charges.
At the end of the year, the co-op trues-up what the actual expenditures vs revenues were. If they have a surplus, they prorate it based on each customer’s usage for the previous year, and discount that amount on the next bill. That has been the case for the last several years. If there is a shortage, I presume they up the rates for the next year. I’ve never seen an additional charge in lieu of a rebate.
Electricity is currently produced using natural gas, coal, hydro, and solar (single digit percent). There are efforts to invest heavily into solar. We are far enough South that 30% solar is probably feasible, but if the economics aren’t there, they will turn back to whatever is cheapest very quickly. They know we have options!
My most recent bill from GA Power, covering Apr 19 – May 19 came out to $0.1153 / KWh including state tax. Breakdown:
Usage: 1468 KWh
Service: $132.21 ($0.0927 / KWh)
Environmental Compliance Cost: $17.21
Nuclear Construction Cost Recovery: $3.56
Municipal Franchise Fee: $1.85
Sales Tax: $12.72
Total: $171.61
Reliability has to be part of the equation. If a utility can’t produce at historical levels of reliability that are well above 99%, then they should be penalized.
In a competitive market, the price increase to cover the penalties and the unreliability factor should have their customers switching ASAP.
Then here is the equitable cost sharing of the transmission lines and maintenance of those lines. There has to be a pool that all of the players pay into for new lines and maintenance. No free riders.
A P.S. – The article does cover transmission lines and sharing. It just didn’t seem detailed enough on that topic. But that’s OK. It is an overview article and not a detailed blueprint.
More explicitly stated, the consumers can’t just focus on the cost of production and ignore the distribution and maintenance costs.
On your last sentence, of course consumers have to keep all expenses in mind, we leave it to the politicians to ignore the practicalities – they rarely experience the downsides when it all goes pear-shaped.
+100
Consumers really, really need to harp on an unreliability factor- with penalties- as they will
eventually have to pay for the prohibitively high cost of installing battery backup which is many
times as expensive as the original installation. Having penalties only begins to reveal the total cost
of unreliable RE.
https://blog.friendsofscience.org/2021/12/21/the-cost-of-net-zero-electrification-of-the-u-s-a/amp/
Meanwhile in Europe the Telegraph is reporting:
The International Energy Agency warned Putin’s decision to curtail flows through the Nord Stream pipeline over the last week could be a precursor to a full shutdown this winter.
Fatih Birol, head of the IEA, told the Financial Times: “Europe should be ready in case Russian gas is completely cut off.”
He said European countries should take measures to reduce demand ahead of the key winter period. This included firing up old coal-fired power stations despite concerns about emissions.
Bloomberg reported that Germany was preparing to trigger the second phase of its emergency gas plan – known as the “alarm” stage – amid rising fears that Putin could turn off the taps.
Meanwhile, Germany hasn’t moved to restart the three nuclear reactors they shut down last December or postpone the shutdown of the final three this December. Total lost capacity between all six is 8,107 MW.
I guess in Germany the anti-nuclear crazies have more influence than the anti-CO2 crazies.
Dictators may be able to make the trains run on time. But that is only so long as you do exactly what they tell you to do. Piss them off, and they will cut off your train service completely.
“A Government that has the power to give you everything you want, has the power to take everything you have.” Reagan, wasnt it?
FYI, Vogtle 3 & 4 are each rated at 1.2GW and are over 95 % complete. They are expected to start operating by the end of 2022 and 2023, respectively. It will be interesting to see how their operation affects electricity rates in Georgia.
You can have your nuclear plant, but it will cost 3x more than promised. Then you get to pay for waste sitting there on site doing nothing.
A guy named ResourceGuy should probable provide a link to the resource he used to find the 3x.
No, you don’t want a picture of his anus posted here.
Or we can get religious environmentalists like yourself out of the way and reprocess the spent fuel into usable fuels and the tiny fraction of high level waste.
My concern would be destruction of the infrastructure due to storms. Who will be responsible for repairs on such a grand scale? If the lowest prices prevail for the majority of people, will there be enough reserve capital to do repairs on that scale? I do not know how it would work. In addition, currently most major power companies provide extra assistance to other major power companies post major storm damage. These are reciprocal agreements between geographic areas.