Tuesday, November 19, 2013

Mayberry Economics & Robbery by Subsidy

This energy world is a strange and bizarre one.  Even after a year of learning what goes on, sometimes I still don’t get the logic of it.  Maybe this is just a classic example of “crony capitalism”.

Here we have Energy Information Agency stating energy demand is waning and disconnected from economic growth in this new economy.  Energy efficiency is working.  In spite of the claims of Clean Line Energy, demand is simply not growing.  The company is using old economic models.   Consequently, energy prices are depressed.  Energy is very economical.  As economist Jeffrey Sachs states, "We can now harness solar power for about one-hundredth of what electricity cost to generate 40 years ago."

In this depressed energy market, coal fired generation companies are going bankrupt.  Midwest Generation with several plants in Illinois is bankrupt.  Ameren, Illinois second largest energy generator and provider wants to sell its coal generation to Dynegy.  On top of all that, Exelon is talking about curtailing nuclear generation or even shutting down nuke plants.  In Illinois Exelon is considering closing the Clinton Illinois plant and the Quad Cities plant

Yet, Clean Line Energy wants to build two 3,500 MW powerlines from the far side of Iowa and Kansas into the PJM market.  Clean Line wants to send energy generation 6 times the Hoover dam into the PJM depressed market with the proposed RICL and GBE projects.

What the heck is going on here?  Exelon was thrown out of the American Wind Energy Association a year ago because it complained about “negative pricing”.  Wind energy continues generation when the only profit made is from the $22/MWH from the government’s Production Tax Credit subsidy while the other energy generators are losing money.  In other economies this would be considered “predatory pricing”.  Call it what it is.  Wind energy is producing a product when the only profit made is from government payments in order to drive other competition out of business. 

So Illinois is about to lose Midwest Generation coal plants, including Joliet and possible lose two nuclear plants so we can import wind energy from the far side of Iowa, and the Federal Energy Regulatory Commission call this “energy independence”.   Go figure.

Exelon recently suggested perhaps Illinois should subsidize nuclear plants in Illinois to counteract the depressed market price created by subsidized wind energy.  This is absurd.  This is crony capitalism.  Shall we create corporate welfare for the nuke industry to counteract the corporate welfare for the wind industry? And after that, Jimmy Glotfelty of CLean Line has dreams of captive ratepayer cost allocations so we can also pay for these privately owned/billionaire owned powerline!  W.T.F.?  This is Robbery by Subsidy

“Robbery by Subsidy” is a 19th Century term created by a French political economist Frederic Bastiat.  It accurately describes what is going on in the energy industry with Clean Line Energy, the big wind corporations, and FERC’s love affair for more transmission where the opportunity cost of choosing a political agenda and cram-it-down-their-throats-economics over the best option available is ignored and wasted. 

One of FERC’s policies is call the Open Access Transmission Tariff.  Ironically, in compliance with “Open Access Transmission Tariff”, Clean Line Energy is proposing a limited access HVDC powerline that will limit growth of wind energy in Illinois and likely force the closure of Illinois nuclear and coal energy facilities.  FERC calls this “open access”, a funny euphemism.  We have a different term for it here in Mayberry.  (OK, the “Mayberry” jokes needs to be explained.  Clean Line Energy and EUCI are sponsoring a conference that takes a dim view of landowners with such sessions titled “Marketing to Mayberry”. I suspect this is intended to be jabs at BLOCKRICL and folks in Mendota, Illinois.)

But fear not! The Kansas Corporation Commission is looking out for ratepayers in the eastern states of the PJM region!  While the KCC refused to hear input from Kansas residents and would rather out of state residents to mind their own business, the KCC stated there is a “benefit” in Clean Line’s Grain Belt Express for ratepayers in eastern states.  Again, the KCC’s definition of “benefit” is a bit myopic with the opportunity cost of the eastern states not considered and only the potential economic benefit of wind corporations is considered. 

I’m a simple Illinois farmboy who studied ag-economics at the #4 in the nation party school, but I don’t get it.  Maybe if I had an MBA from Harvard Business School, I would understand this logic better.  Then again, Most Illinois residents who attended the Public Forums in Mendota don’t understand the economics behind the Rock Island Clean Line either, but we do understand the politics behind Clean Line Energy.  However, Illinois residents do make excellent arguments opposing Clean Line's RICL project and none of these have a thing to do with NIMBY or BANANAS.

Maybe I should write a play about the follies of corporate subsidies, protectionist policies, and crony capitalism.  Sadly, this has already been written by the 19th century economist Fredrick Bastiat.  Protectionism and the Three Alderman is a hilarious play about protectionism, the cost of transportation, wood and butter markets.  It could easily be plagiarized and adapted to the wind energy industry, Clean Line Energy, Michael Skelly and Jimmy Glotfelty. 

It is truly a great piece of classic literature and I highly recommend it.  The energy industry and a few politicians could learn a lot from it.  It’s something us common folk from Mayberry already know.  Or as Howard Lerner the Northwestern University guru-advocate of big wind energy from the Environmental Law & Policy Center says “The public ought not to be called upon to subsidize the losers in a competitive market and pay higher rates in return,”   It’s time we return to simple Mayberry Economics, quit the subsidies for wind, limit cost allocation for wind’s powerlines, and all other policies advocating crony capitalism in the energy industry.

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