Is the Utility Industry Like the War Department:Inefficient?

Investment Analysis Clubs Macro Economic Trends and Risks
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A few weeks ago, expert witness Mark Ellis posted the single most important chart that I’ve seen about utilities, and it answers the question of where all our money is going. The argument from utilities is that they need to charge higher prices, so they can do more investments. But what Ellis showed is that more financial investment is not resulting in more actual investment in the grid.

we have increased spending on the U.S. transmission system by five times over the past twenty years. Yet the utilities need more? What were they doing with these investments?

One obvious answer is that while utilities are putting a lot of cash into infrastructure, they aren’t actually spending it on the right things. For instance, it’s really cheap to generate power in some parts of the country, like Oklahoma, and expensive to generate power in other parts of the country that are heavy energy users, like Michigan. But those regions can’t ship power easily to one another. High-voltage transmission lines, basically a big set of high-tech extension cords, could connect these areas easily. Such investment is also a good deal, costing a fourth to build high-voltage lines as low-voltage ones.

In fact, we are spending less on the high voltage efficient transmission than the less efficient low voltage transmission.

three analysts found where utilities are spending. And it’s on projects that are small and local, as opposed to interstate and necessary. For instance, there was a 26-fold increase in investment on these small projects, known as “supplementals,” from 2009-2023 in the mid-Atlantic region.

I’m sure that’s not the only place they are wasting capital, but it shows the point. Still, why is there such waste? Well, there’s a lot of chatter in the utility space about planning, with various different levels of complexity that are mind-boggling, but the gist of it is simple. Utilities make money, even when they invest inefficiently. And there are incentives that push them to deploy capital to build things that aren’t necessary, or shouldn’t be a high priority.

Investor-owned electric utilities want to maximize the amount of capital they deploy. They don’t care about being efficient with it, they don’t want to spend purely if it’s necessary, they don’t want to pay low prices for equipment, they don’t care if the grid is resilient, they just want to make sure they are deploying lots and lots and lots of capital so their regulators let them charge ratepayers costs that pay them a very high return on equity.

Do high-voltage interstate transmission lines offer as much profit? Nope. To build one of those projects, they often have to compete at the interstate level and undergo a layer of scrutiny or regional planning, neither of which they’re inclined to do.

So where’s all the f&@$ing money going?!? To Wall Street and waste. As with everything else in America, the important social resource created by our forebears used to be managed by engineers who focused on universal service and safety margins. Today it is run by financial engineers who prioritize returns on investment.

So utilities are a hindrance to AI.

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A lot of opinions on a very good blog.

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You can’t beat a municipally-owned power company where you don’t have any funds being siphoned off to private equity. Follow the money.

On the other hand, the Clark County Gov’t (which has no control over the Public Utilities Company – they operate under a State charter) wanted to charge me a $2 “convenience fee” on an EFT check for a $12 dog license renewal. I found out that it was still legal to mail them a paper check so I did that.

I wonder which corrupt member of the County Council got a big campaign contribution to install the payment app?

intercst

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Utilities like to depreciate their new investments over 14 years or so. That makes user costs for maintenance affordable. That works well when the power growth rate is steady at say 2% per year.

Rapid increases in demand are a problem for utilities. If data centers will pay for the upgrades should be ok but if data centers fail rate payers are stuck w depreciation charges.

Should govt fund utility expansion? Expand TVA. Historically this is a very sensitive subject. Much debated in the '30s when rural electrification was under discussion.

Public utilities serve us well. Should this subject be reviewed?

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San Francisco’s stalled bid to break up with Pacific Gas and Electric Company (PG&E) and provide public power appears to be gaining traction amid frustration over the massive blackout in December and state regulators having recently given PG&E until October to set a justifiable price for the city to acquire its grid.

The fire and outage at PG&E’s Mission substation south of market left merchants on Irving Street in the city’s Sunset District without power for three days. The outage hit on the Saturday before Christmas, and the eve of the Chinese winter solstice celebration, confounding Rose Chen, who runs BBQ King and who stocked up for the Internet sales crush.

“We prepared a lot of food for the winter festival,” she said, only to watch it spoil when the outage stretched on for three says. “We can’t do anything.”

It was the same across the street at Tina Zheng’s Irvine Seafood Market.

“Everything is messed up, we cannot do business,” she said, so she and her husband filled their van with fish and ended up sleeping in the vehicle, using its power to keep cool water circulating in a plastic bin to keep them alive.

But in the end, the fish didn’t survive, and the market suffered losses of more than $10,000.

For public power supporters like city Supervisor Matt Dorsey, the December nightmare was only the latest in a string of blackouts and mishaps that they believe could be avoided if the city took over the grid.

“It’s s time for PG&E to be replaced,” Dorsey said in a recent interview. “It’s time for San Francisco to have a municipally owned utility.”

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Samuel Insul noticed the major cost of an electric utility is financing the needed peak capacity. Utilities can handle orderly growth in demand. Then depreciation charges are affordable.

Rapid change is a problem. Electricity has to come from somewhere. How do you fund the needed capacity?

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I don’t understand this statement. Why not rent one of those large diesel generators for the weekend? Plug the fridges and freezers into it and the food won’t spoil.

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When a substation in the grid goes out affecting a large area, trying to find “a large diesel generator” on demand is probably impossible. Not to mention finding a supply of diesel fuel with the pumps mostly inoperative. Not to mention doing all this on a timeline with food spoiling in a refrigerator.

(I gonna hazard a guess that in a store the refrigerators are hard wired, so you also need to have an electrician handy, who might be in short supply during a major power event.)

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They also suffered losses of $10,000 and I’m thinking finding and leasing a large generator quickly might very well have been more than that. Perhaps they did the math?

Jim,A

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Many years ago we were without electricity for 6 days because of a winter storm. There are only six of us on our line so that puts us way down on the power companies restoring schedule.

After day three I started looking for a generator. There were none to be found. We kept the house decent with our wood heat and the food perishables went outside. My parents lived 8 miles away. We went there for our bathing. A few weeks after things went back to normal, we purchased a portable generator. The house is now wired so that it can be plugged into it. It’s large enough to run our deep freezer, refrigerator and the electric water heater. We have used it a few times since. It was worth every penny.

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