NewEnergyNews: Do the Big Three Utilities Need More of Californians’ Money? The Ratepayer Advocate says no, but the IOUs say yes.

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The challenge: To make every day Earth Day.

YESTERDAY

  • THE STUDY: WHY THE OIL & GAS INDUSTRY BACKS AN ALL-OF-THE-ABOVE ENERGY POLICY
  • QUICK NEWS, July 22: U.S. DOE FORESEES NEW ENERGY; THE BEST CITIES FOR NEW ENERGY; ENERGY STORAGE TO BE $50BIL MRKT
  • THE DAY BEFORE

  • THE STUDY: THE COST OF ADDING SOLAR TO A UTILITY’S OPERATIONS
  • QUICK NEWS, 7-21: U.S. WIND, SOLAR TO GROW THROUGH 2020; NEW GEOTHERMAL RISING; CHINESE HAVE RIGHTS IN OREGON WIND BUY
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    THE DAY BEFORE THE DAY BEFORE

  • Weekend Video: Colbert Gets Into Coal Rolling
  • Weekend Video: How Solar Power Plants Store And Use Solar Energy
  • Weekend Video: A Story About People And Wind Energy
  • THE DAY BEFORE THAT

  • FRIDAY WORLD HEADLINE-THE CLIMATE CHANGED WORLD IS NOW 5 TIMES MORE DANGEROUS
  • FRIDAY WORLD HEADLINE-THE MONEY IN SOLAR, Q2 2014
  • FRIDAY WORLD HEADLINE-EU STILL GROWING OCEAN WIND
  • FRIDAY WORLD HEADLINE-$109MIL FROM GERMAN BANK BACKS KENYA GEOTHERMAL
  • AND THE DAY BEFORE THAT

    THINGS-TO-THINK-ABOUT THURSDAY, July 17:

  • TTTA Thursday-THE PREMATURE EVACUATION FROM CLIMATE CHANGE EXCITEMENT
  • TTTA Thursday-NEW ENERGY TO SUSTAIN BIG GROWTH – EIA
  • TTTA Thursday-SOLAR’S COST TO UTILITIES
  • TTTA Thursday-HOW UTILITIES CAN EVOLVE IN A NEW ENERGY WORLD
  • THE LAST DAY UP HERE

  • THE STUDY: HOW TO PROTECT A CAP AND TRADE PROGRAM
  • QUICK NEWS, July 16: 88% OF NEW U.S. POWER IN MAY WAS NEW ENERGY; THE FIGHT FOR WIND IN OHIO; U.S. CRITICAL SYSTEMS REGULARLY BREACHED
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    Anne B. Butterfield of Daily Camera and Huffington Post, is a biweekly contributor to NewEnergyNews

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT)

    November 26, 2013 (Huffington Post via NewEnergyNews)

    Everywhere we turn, environmental news is filled with horrid developments and glimpses of irreversible tipping points.

    Just a handful of examples are breathtaking: Scientists have dared to pinpoint the years at which locations around the world may reach runaway heat, and in the northern hemisphere it's well in sight for our children: 2047. Survivors of Superstorm Sandy are packing up as costs of repair and insurance go out of reach, one threat that climate science has long predicted. Or we could simply talk about the plight of bees and the potential impact on food supplies. Surprising no one who explores the Pacific Ocean, sailor Ivan MacFadyen described long a journey dubbed The Ocean is Broken, in which he saw vast expanses of trash and almost no wildlife save for a whale struggling a with giant tumor on its head, evoking the tons of radioactive water coming daily from Fukushima's lamed nuclear power center. Rampaging fishing methods and ocean acidification are now reported as causing the overpopulation of jellyfish that have jammed the intakes of nuclear plants around the world. Yet the shutting down of nuclear plants is a trifling setback compared with the doom that can result in coming days at Fukushima in the delicate job to extract bent and spent fuel rods from a ruined storage tank, a project dubbed "radioactive pick up sticks."

    With all these horrors to ponder you wouldn't expect to hear that you should also worry about the United States running out of coal. But you would be wrong, says Leslie Glustrom, founder and research director for Clean Energy Action. Her contention is that we've passed the peak in our nation's legendary supply of coal that powers over one-third of our grid capacity. This grim news is faithfully spelled out in three reports, with the complete story told in Warning: Faulty Reporting of US Coal Reserves (pdf). (Disclosure: I serve on CEA's board and have known the author for years.)

    Glustrom's research presents a sea change in how we should understand our energy challenges, or experience grim consequences. It's not only about toxic and heat-trapping emissions anymore; it's also about having enough energy generation to run big cities and regions that now rely on coal. Glustrom worries openly about how commerce will go on in many regions in 2025 if they don't plan their energy futures right.

    2013-11-05-FigureES4_FULL.jpgclick to enlarge

    Scrutinizing data for prices on delivered coal nationwide, Glustrom's new report establishes that coal's price has risen nearly 8 percent annually for eight years, roughly doubling, due mostly to thinner, deeper coal seams plus costlier diesel transport expenses. Higher coal prices in a time of "cheap" natural gas and affordable renewables means coal companies are lamed by low or no profits, as they hold debt levels that dwarf their market value and carry very high interest rates.

    2013-11-05-Table_ES2_FULL.jpgclick to enlarge

    2013-11-05-Figure_ES2_FULL.jpg

    One leading coal company, Patriot, filed for bankruptcy last year; many others are also struggling under bankruptcy watch and not eager to upgrade equipment for the tougher mining ahead. Add to this the bizarre event this fall of a coal lease failing to sell in Wyoming's Powder River Basin, the "Fort Knox" of the nation's coal supply, with some pundits agreeing this portends a tightening of the nation's coal supply, not to mention the array of researchers cited in the report. Indeed, at the mid point of 2013, only 488 millions tons of coal were produced in the U.S.; unless a major catch up happens by year-end, 2013 may be as low in production as 1993.

    Coal may exist in large quantities geologically, but economically, it's getting out of reach, as confirmed by US Geological Survey in studies indicating that less than 20 percent of US coal formations are economically recoverable, as explored in the CEA report. To Glustrom, that number plus others translate to 10 to 20 years more of burning coal in the US. It takes capital, accessible coal with good heat content and favorable market conditions to assure that mining companies will stay in business. She has observed a classic disconnect between camps of professionals in which geologists tend to assume money is "infinite" and financial analysts tend to assume that available coal is "infinite." Both biases are faulty and together they court disaster, and "it is only by combining thoughtful estimates of available coal and available money that our country can come to a realistic estimate of the amount of US coal that can be mined at a profit." This brings us back to her main and rather simple point: "If the companies cannot make a profit by mining coal they won't be mining for long."

    No one is more emphatic than Glustrom herself that she cannot predict the future, but she presents trend lines that are robust and confirmed assertively by the editorial board at West Virginia Gazette:

    Although Clean Energy Action is a "green" nonprofit opposed to fossil fuels, this study contains many hard economic facts. As we've said before, West Virginia's leaders should lower their protests about pollution controls, and instead launch intelligent planning for the profound shift that is occurring in the Mountain State's economy.

    The report "Warning, Faulty Reporting of US Coal Reserves" and its companion reports belong in the hands of energy and climate policy makers, investors, bankers, and rate payer watchdog groups, so that states can plan for, rather than react to, a future with sea change risk factors.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    It bears mentioning that even China is enacting a "peak coal" mentality, with Shanghai declaring that it will completely ban coal burning in 2017 with intent to close down hundreds of coal burning boilers and industrial furnaces, or shifting them to clean energy by 2015. And Citi Research, in "The Unimaginable: Peak Coal in China," took a look at all forms of energy production in China and figured that demand for coal will flatten or peak by 2020 and those "coal exporting countries that have been counting on strong future coal demand could be most at risk." Include US coal producers in that group of exporters.

    Our world is undergoing many sorts of change and upheaval. We in the industrialized world have spent about a century dismissing ocean trash, overfishing, pesticides, nuclear hazard, and oil and coal burning with a shrug of, "Hey it's fine, nature can manage it." Now we're surrounded by impacts of industrial-grade consumption, including depletion of critical resources and tipping points of many kinds. It is not enough to think of only ourselves and plan for strictly our own survival or convenience. The threat to animals everywhere, indeed to whole systems of the living, is the grief-filled backdrop of our times. It's "all hands on deck" at this point of human voyaging, and in our nation's capital, we certainly don't have that. Towns, states and regions need to plan fiercely and follow through. And a fine example is Boulder Colorado's recent victory to keep on track for clean energy by separating from its electric utility that makes 59 percent of its power from coal.

    Clean Energy Action is disseminating "Warning: Faulty Reporting of US Coal Reserves" for free to all manner of relevant professionals who should be concerned about long range trends which now include the supply risks of coal, and is supporting that outreach through a fundraising campaign.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    Author's note: Want to support my work? Please "fan" me at Huffpost Denver, here (http://www.huffingtonpost.com/anne-butterfield). Thanks.

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    Anne's previous NewEnergyNews columns:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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    Your intrepid reporter

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  • Tuesday, January 29, 2013

    Do the Big Three Utilities Need More of Californians’ Money? The Ratepayer Advocate says no, but the IOUs say yes.

    Do the Big Three Utilities Need More of Californians’ Money? The Ratepayer Advocate says no, but the IOUs say yes.

    Herman K. Trabish, August 17, 2012 (Greentech Media)

    California’s investor-owned utilities (IOUs) asked state regulators to approve small Return on Equity (ROE) decreases for the period 2013-2016 that will, according to the state’s Division of Ratepayer Advocates (DRA), redirect hundreds of millions of dollars too little from the utilities’ stockholders.

    Interest rates and other capital costs are presently significantly lower than they were whenthe California Public Utilities Commission (CPUC) in 2007 put the Pacific Gas and Electric (PG&E) ROE at 11.35 percent, the Southern California Edison (SCE) ROE at 11.50 percent and the San Diego Gas and Electric (SDG&E) ROE at 11.1 percent. After extensions during the recession, those determinations expire December 31.

    The PG&E requested ROE reduction to 11.0 percent, the SCE requested reduction to 11.1 percent, and the SDG&E requested reduction to 11.0 percent “far exceed the companies’ revenue needs and market standards,” according to Acting DRA Director Joe Como.

    SCE’s request “is reasonable compared to other jurisdictions when adjusted for risk and leverage,” asserted SCE spokesperson Lauren Bartlett. “The proposal would lower requested customer rates by more than $120 million.”

    DRA is asking the CPUC to limit the PG&E and SCE ROEs to 8.75 percent and the SDG&E ROE to 8.50 percent. The differences between the requested ROEs and the DRA recommended rates, according to DRA regulatory analyst Jerry Oh, are $377 million for PG&E, $211 million for SCE, and $50 million for SDG&E.

    The IOUs, Como said, “should be passing those tens of millions of dollars in savings on to their customers.”

    Setting the ROEs accurately requires determining how much above or below the return on alternative investments the IOUs should provide their shareholders. The higher the return they offer, the more capital investment they can attract.

    Setting the ROEs accurately begins, Oh said, with the sophisticated mathematics of three basic financial models, the Discounted Cash Flow (DCF) model, the Capital Asset Pricing (CAP) model and the Historical Risk Premium (HRP) model.

    Those models make assumptions, Oh explained. Pivotally, assumptions are used in (1) selecting comparable groups of utilities, (2) calculating the anticipated growth of alternative investments and (3) estimating the risk associated utility investments versus the risk of alternative investments.

    The DRA’s CPUC filing, authored by Pennsylvania State University Professor of Finance J. Randall Woolridge, found the utilities’ modeling flawed in three broad ways: They selected comparable groups of utilities with above average yields, they assumed overly optimistic growth from alternative investments, and they overestimated the degree of risk to their shareholders.

    The IOUs’ filings with the CPUC to date do not deny Woolridge’s conclusions, though further rebuttals are expected by the end of August. Instead, they have argued, the larger factors are used because they need more money than other U.S. utilities and must therefore offer higher ROEs. Optimistic projections for alternative investment returns were purposely chosen, for instance, because they increase what the IOUs can offer investors.

    “We believe a return on equity of 11.0 percent is warranted under current market conditions,” PG&E External Communications Chief Jonathan Marshall emailed. “Our request would reduce our annual revenues by about $100 million (other things being equal). Although our proposed ROE is a little higher than for other comparable utilities across the country, that’s justified by the extra risk premium many investors see for doing business in California.”

    Historic long-run growth rates for GDP and the S&P 500 “are in the 5 percent to 7 percent range,” Professor Woolridge noted, whereas PG&E’s “long-run growth rate projection of 10.9 percent is vastly overstated.” Recent trends, Woolridge added, suggest economic growth “in the range of 4 percent to 5 percent.”

    “SCE’s unprecedented capital investments to meet state and federal policy mandates and goals, replace aging infrastructure, modernize meters and support new renewable electric sources with vast new transmission projects have significantly increased SCE’s business risk,” explained the filing, which was authored by SCE Director of Regulatory Finance and Economics Dr. Paul T. Hunt. SCE’s long-term power contracts for conventional and renewable resources, he added, “are perceived by the financial community to be debt equivalents that must be supported by equity earning a compensatory return.”

    “Our request actually protects customer interests,” PG&E’s Marshall added. “We are looking at raising about $8 billion in debt and equity markets from 2012-14 for infrastructure upgrades, repairs, and facilities to meet load growth. With a credit rating of only BBB, we have no cushion against negative surprises.”

    All changes in economic markets, interest rates, and IOU infrastructure and capital needs will be considered by the CPUC in a process of hearings and counter-filings that will begin in September, Oh said. And the Commission will not only be limited to an evaluation of the numbers, but must also reconcile IOU needs, shareholder needs and ratepayer needs.

    SCE is burdened, potentially severely, by the loss of the 2,300-megawatt San Onofre Nuclear Generating Station, of which it is a 78-percent owner. SDG&E, which owns 20 percent of San Onofre, has incurred the expense of hurrying the 1,000-megawatt-capacitySunrise Powerlink transmission system on-line to help relieve the loss of the nuclear plant. And PG&E is still struggling to cope with liability losses and replacement costs associated with the 2010 San Bruno natural gas line explosion.

    It may be that the question the CPUC must ultimately decide is whether the IOUs’ shareholders or ratepayers must bear those burdens.

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