Archive for June, 2013

Jeff Skilling, one-time CEO of Enron and ex-Smartest Guy in the Room, had his federal prison sentence reduced from 24 years to 14 on Friday.

In 2006, he was convicted of defrauding investors, though he maintains his innocence.

Skilling really missed his calling. He should have been an actor. When it comes to putting on the face of aggrieved innocence, no one can match him.  Remember that it was Skilling as CFO who oversaw Enron’s mark-to-market booking of profits on energy supply contracts. Remember that? That’s why Enron was always pushing to do ten-year electricity supply deals when other suppliers balked at 3-year terms. Also referred to as mark-to-make-believe even within Enron, it enabled the company to make wild guesses about what its margins would be for later years, but still book all the imagined profits in the current year.

That’s the quality of earnings that Enron reported to public markets where its stock was traded, or used as a currency to make acquisitions like that of Portland General Electric. Forget about investors for a minute. Just think about the PGE employees whose retirement accounts were converted to Enron stock after twenty or thirty years of work.

Poor Jeff.

Read Full Post »


No, not the movie, just the day. Today’s the summer solstice.

Unlike the month of May, when Chicagoans still consider there may be a risk of a snowstorm (even if it doesn’t stick to the ground), mid-June is generally regarded as the beginning of summer. And summer usually means an upward slope in electricity market prices as demand grows. But instead of that upward slope, those prices are still bouncing along in a trench. Today’s fixed forward prices in the wholesale market remain in the low $30 range:

Balance of 2013:          $32.75/megawatt-hour

2014:                              $31.67/MWh

2015:                              $32.67/MWh

2016:                              $33.60/MWh

2017:                              $34.24/MWh

So, four years out not only are fixed forward prices almost flat, but there’s a slight backwardation for 2014. There’s even a hair of the same dog for 2015.

Compare this to June 2008, when the balance of the year price ranged up to around $64/MWh, and fixed forwards two, three and four years out were also backward, going down to the mid to high $50 range.  June 2008 prompt month natural gas was around $10 -$11/mmBtu’s, as opposed to $3.80 – $3.90 range now.

When you’re in the forest and all the little animals start to run like crazy, you can stand around watching and wondering what the hell’s going on.  Or you might just intuit that you’re in for an earthquake.  Forward market prices are like those little forest critters. They sense things before we do.

No wonder Crane says he’s going to cut back production at Exelon’s nukes, but he’s trying to pin the blame on windpower, rather than on the natural gas glut and an almost imperceptible jobless recovery in which corporate profits are up while real wages haven’t moved.

Read Full Post »

Today’s NY Times reports that the Obama Administration is planning new rules limiting CO2 emissions from power plants (e.g., coal-fired plants, which are about half of the U.S. generation portfolio), and that an announcement could be made as early as next week. Power plants are the largest single source of greenhouse gases. The move follows comments that Obama made not only in his second inaugural address, but also in several speeches since then.

As discussed previously in The Sparkspread, several coal generation plants in Chicago are set to close not only because of the cost of retrofits that would make the plants compliant with anticipated regulations, but also because of the historically low prices for electricity in the current market. For example, today’s fixed forward price for 2017 at the Cinergy Hub is just $34 per megawatt-hour.

We can expect upward pressure on electricity prices in the years ahead.

Read Full Post »

About a week ago, Southern California Edison announced that it was going to shut down its troubled San Onofre nuclear generating station because in addition to extraordinarily expensive repairs that would be required to bring the plant back up to safe operating condition, SoCal Edison would be facing a difficult and protracted political fight before it could even get to “yes” on the question of whether it could continue to run the plant.

There are two reactors at the San Onofre site, but these have been idle for some time now due to degradation of steam tubes caused by unusual vibrations. (Those were not good, good, good vibrations.) Both California Senator Barbara Boxer and San Diego Mayor Bob Filner expressed great relief that the nuclear plant would stop operation.

Their feelings of relief are misplaced.

Recall that in the Fukushima disaster, none of the generators at the TEPCO plant was running; in fact, the plant had been shut down for safety reasons once news of the earthquake broke. Rather, it was the loss of electrical power to the plant that caused the cooling tanks for spent fuel to stop operating. The water started to boil away, which was followed by the formation of explosive gases, and the consequent explosions spewed radioactive material over a wide area in that prefect.

Our political class has never been able to carry through on its promise to provide a nuclear waste repository (e.g., Yucca Mountain). So at San Onofre, as in other nuclear stations across the country, spent fuel is stored in water-filled cooling tanks on site – just like spent fuel was stored at Fukushima. It will be years before the spent fuel at San Onofre is cool enough to be removed from spent fuel tanks to a more permanent storage solution in steel and concrete casks.

If an earthquake or tsunami should hit San Onofre and the station were to lose power for a sufficient period, we could have another Fukushima at Surf City, USA.

This danger is not going to go away until the problem of spent fuel storage is dealt with adequately. Given that the 113th Congress can hardly cooperate sufficiently to order paperclips, don’t expect change anytime soon.

Read Full Post »

Our complaint against ComEd is grounded on their unilateral decision to delay implementation of smart meters because of their dissatisfaction with the Illinois Commerce Commission’s decision in a separate docket regarding ComEd’s formula rate. Because it may be somewhat daunting to work through the complaint and the various ICC orders, here’s a link to a video that explains how ComEd arrived at its decision.

Read Full Post »

rain_storm_by_horrormoveThe Illinois Commerce Commission today held ComEd responsible for damages suffered by some customers due to service interruptions caused by storms that occurred on July 11, 2011. The July 11 storm was one of six major storms that passed through ComEd’s service territory (a/k/a ComEdistan) in June and July 2011, but the ICC did not hold ComEd liable for damages from service interruptions from these other storms.

Under Section 16-125(e) of the Illinois Public Utilities Act, if more than 30,000 electric utility customers are subjected to a continuous power interruption of four hours or more, that utility is responsible for compensating the affected customers for actual, but not consequential, damages suffered as a result of the power interruption. The electric utility is also required to reimburse affected municipalities for the costs of all emergency and contingency expenses incurred as a result of the power interruption. 220 ILCS 5/16-125(e). While there is a carve-out if the service interruption is due to unpreventable storm damage from extreme weather, ComEd still has to maintain a distribution network that can withstand weather events of a type reasonably to be expected in the Upper Midwest.

The ICC’s decision is bigger news than it might seem at first sight, but it has to be viewed through the culture of ComEdistan. 16-125(e) was passed to incentivize ComEd to maintain its distribution system, and it’s been on the books for sixteen years. But until now the law has been an abject failure because ComEd has never paid a nickel to any affected ratepayer despite its historical underinvestment in its system.

During the June and July 2011 outages, hundreds of thousands of ComEd customers were without power for periods ranging from several hours to several days. Shortly after these storms, ComEd filed a petition with the ICC seeking to absolve itself of all liability for damages suffered by customers and municipalities for any of the 2011 storms (Ill. C.C. Docket No. 11-0588). Despite the hundreds of thousands of customers without power during these events, in its petition ComEd argued that no single interruption affected more than 30,000 people. As ComEd reads the statute, the numbers of affected customers cannot be aggregated – and ComEd therefore has no liability under Section 16-125(e) – unless the interruption is caused by the same damage to the same equipment at the same location, and starts and ends at the same time.

ComEdistan has an unmistakable through-the-looking-glass atmosphere. Even a modest vivisection of ComEd’s argument reveals its absurdity.

Assume for example, that 20,000 electric utility customers are affected by a storm in Town A, and that 25,000 are affected by the same storm in the adjacent Town B. Assume further that Town A’s power is restored after five hours and Town B’s after six. One might think that 45,000 customers could be entitled to compensation because they had been subjected to a continuous power interruption of more than four hours. Under ComEd’s interpretation one would be quite wrong: Because these outages began and ended at different times, ComEd argues that the affected customers cannot be aggregated in order to reach the 30,000-customer threshhold that triggers liability under 16-125(e).

Moreover, in ComEd’s system each of Town A and Town B is likely to have several distribution circuits (electric distribution lines that loop in and around neighborhoods to serve various houses, businesses, etc.), so that even if one rejects ComEd’s argument that the interruptions must begin and end simultaneously, in ComEdistan even residents of the same town may not be aggregated if they are on different distribution circuits.

In short, ComEd’s reading of Section 16-125(e) renders the statute meaningless and absurd. In ComEdistan, there is virtually no circumstance in which ComEd would ever be liable to customers and municipalities under this law.

Despite its reliability issues in 2011, in that year ComEd was pushing the initial version of its Smart Grid and rate increase legislation, known then as Senate Bill 1652, which is now law. That law supposedly imposed on ComEd new reliability metrics to be used to determine whether ComEd’s automatic rate increases may go into effect. However, there’s a hole in the law through which an 18-wheeler and two cavalry regiments can plow through side by side with ease: The law allows ComEd to exclude from its reliability metrics every year up to nine “extreme weather event days” such as those seen in June and July. There were six storm systems that passed through ComEdistan in 2011. Had current law been in effect in 2011, not one of the outages suffered by Illinois ratepayers would have impeded ComEd’s ability to increase its rates.

Read Full Post »