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Archive for the ‘Natural Gas’ Category

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State laws and regulations generally specify the time periods for which public utilities must keep records, and those periods vary for different types of records. For example, a public utility may be required to maintain records of meter tests for six or more years, while customer billing records may be subject to retention periods of only a year or two.

Similarly, these regulations may limit the time period for which a public utility may recover from its customer if the utility learns that it has provided service to the customer for which it hasn’t billed. This permitted backbill period may be as short as one year in the  case of residential customers, and perhaps longer in the case of nonresidential customers.

These time periods vary from state to state and must be confirmed in any particular case. But all of these time periods can have important consequences for customers if they suspect, or discover, that they’ve been overcharged.

For example, assume Customer Industries opened its factory in 2010, and in 2018 it learns that it has been overcharged for a particular cost component of its bill since the account was opened. Naturally, it would like to recover the whole amount of the overcharge. But it may find itself stymied because it doesn’t keep copies of its own utility bills for more than a year or so.

Assume further that the utility is required to keep customer bills for only two years. If the utility recognizes that it has overcharged Customer Industries and is willing to issue a refund, it may limit its refund to the previous two years, even though the overcharge stretches back for eight years. The utility may claim that Customer Industries can’t prove overcharges for any period prior to that. Will they win on that? A definite “maybe.” At the very least, Customer Industries will have a steep evidentiary climb in order to make its case.

The customer would also have to check applicable regulations to see if there’s a distinction between errors that appear on the face of the bill (e.g., an error in addition or multiplication), and errors that are “latent” and can only be determined by analyzing the cost components on the bill.

In either case, Customer Industries would be in a much stronger position if it had simply kept its bills, or copies of them, because then it would have an actual record of what the overcharge was.

Recall that state regulations may limit the periods for which a utility can backbill a customer. But that does not necessarily limit the period for which the customer can claim a refund from the utility — provided that it has evidence. And that evidence consists of utility bills.

Given that you can buy a scanner at any office supply store for less than $200, there’s really no excuse for not keeping copies of utility bills. They could turn out to be worth a lot more than you think.

 

 

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S Korea Nuke plant

On Tuesday, ISO New England, which operates the electric grid for certain states in that region (other than New York), issued a report that New England’s average annual real time wholesale electricity price for 2017 at $33.94 per megawatt-hour was the second-lowest price in fifteen (15) years. ISO New England stated that these low prices were driven chiefly by low prices for natural gas, the principal fuel used for generation at the margin, as well as reduced demand levels.

As earlier stated on the Sparkspread, for several years Exelon CEO Chris Crane has played the role of Peter the Hermit in the electric utility industry’s Crusade to rescue nuclear generation fleets from the infidels of the wholesale market. That is, he wants to make sure that electricity consumers make Exelon and other nuke operators whole for any losses they suffer because, contrary to their expectations, electricity prices have been hitting record lows in a number of markets, mainly due to low natural gas prices. When prices fell, Crane and his cohort lost no time in complaining about the “flawed market” for wholesale electricity.

If things had gone the other way – if electricity prices had risen to record highs instead of fallen to record lows – you can bet that Mr. Crane and his fellow nuke CEOs would be saying that electricity consumers must simply accept the results of the perfectly self-regulating free market in electricity, and if prices rise, that’s just, as they say in Brooklyn, T.S., Elliott.

 

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Eminent Domain

Today, the United States Court of Appeals for the District of Columbia Circuit denied a request by environmental groups and landowners for a stay that would have delayed construction of the Mountain Valley Pipeline (MVP), a 303-mile long natural gas pipeline running from Wetzel County, West Virginia to Pittsylvania, Virginia. When built, the MVP will carry 2,000,000 dekatherms of natural gas per day to markets in the Northeast, Mid-Atlantic and Southeast regions of the U.S.

The problem, of course, was first identified by John Denver in 1971 when he described the area through which the proposed pipeline will pass as almost Heaven. Life is old on the MVP route, older than the trees that have to be cut down, but younger than the mountains that must be trenched to lay a 42-inch diameter underground pipe.

MVP is important for landowners because one of the chief reasons that line developers go to utility regulatory commissions, whether at the state or federal level, is to obtain the power of eminent domain. The developer may not be able to negotiate acquisition of all rights-of-way necessary for its project. It needs the power of the government behind it so that it can compel private landowners to grant easements over their properties, including structures. Developers also use the threat of an eminent domain proceeding as a lever in negotiating the price of easements.

Before the MVP case reached the DC Court of Appeals, it was litigated before the Federal Energy Regulatory Commission, 161 FERC P61043, which issued a certificate of public convenience and necessity for the pipeline in October 2017. Under the Natural Gas Act, once FERC issues a CPCN for a natural gas pipeline project, the holder obtains the power of eminent domain over properties necessary to complete the project. Many state public utility laws are to the same effect, though only within the particular state.

Landowners should be aware that in these cases, whether they’re for oil or gas pipelines or electricity transmission lines, the integrity of their property rights will be decided not by a court, but by an administrative agency, such as FERC or a state public utilities commission. These administrative agencies may or may not give proper weight to eminent domain issues. But the question of public necessity, which is the analog of public use in typical eminent domain cases, is considered by the administrative agency in the first instance. A court reviewing the agency’s order on appeal may view the public necessity issue as one predominantly of fact, and may be disinclined to upset the agency’s findings. Likewise, if a landowner challenges the developer’s easement in a new court case, that court may decide that it does not have jurisdiction to hear the landowner’s challenge because it would mean reviewing the issuance of the CPCN. Or it may simply deem such a request a collateral attack on the agency’s order.

Recall that in Kelo v. City of New London, 545 U.S. 469 (2005), the Supreme Court essentially removed all guard rails and speed limits from the eminent domain highway. The Court interpreted the concept of public use so broadly that essentially all a local government had to do was declare a neighborhood “blighted” and then turn it over to some politically-connected developer. Some states passed laws to limit eminent domain after Kelo.

But more threatening to landowners is that, within the context of an administrative CPCN proceeding, developers will seek to separate CPCN and eminent domain issues to the greatest extent possible. For example, the developer may seek to bifurcate the case so that the public convenience and necessity of a proposed project is analyzed without reference to its effect on private landowners because the bifurcation restricts eminent domain issues to a separate proceeding. Or the developer may simply urge that the regulator dismiss any concern about eminent domain because they are not seeking that power in the instant case.

Either way, for landowners that’s a recipe for disaster. Once the developer obtains its CPCN, the issue of “public necessity” or “public use” has already been determined, and they may well find themselves effectively precluded from defending their property rights.

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Coal mine, early 20th century

Coal mine, early 20th century.

There are mines and there are trenches, but they’re not the same. The so-called war on coal is a great story, but it’s a complete fiction. If there’s a war on steam coal, then there has to be a war on nuclear generation as well because they’re both in the same wholesale electricity market. You don’t have to look far to see Exelon and other nuke operators begging their state legislatures for additional subsidies for their plants. When wholesale electricity market prices are favorable, then coal mines and coal-fired plants (and nukes) extol the survival of the fittest in the Free Market, where only the most efficient competitors survive. But when that market turns on them, all of a sudden “the market is flawed,” and customers are no longer just customers; they’re “stakeholders.”

Be very afraid when anyone in the energy business starts calling you a “stakeholder.” It’s code for “we need you to pay us more money, but our reasons are really bad, so we have to fool you into believing that we’re all in this together.”

Coal mines are not being shuttered by the EPA or Hillary Clinton. The straight-up fact is that shale play natural gas has brought power prices down to levels not seen in years. Allied to this is the continued weak demand in what the feds tell us is our country’s longest (and slowest) economic recovery. The consequence is that low market electricity prices have persisted for an extremely long time.

The mines are being closed, and coal companies are declaring bankruptcy, not because politicians are waging some sort of trench warfare, but simply because of the price of coal, which varies directly with the price of natural gas.

Without doubt, new environmental rules have played a part in reducing coal-fired generation. But if you kick in the door on a house that’s in the process of falling down, don’t expect to be paid for the demolition job. A small decrease in the price of natural gas has a disproportionately large impact on demand for steam coal, and thus on the question of whether to shut a coal-fired station.

There’s no war on coal, and Don Blankenship, contrary to his claim, is not a political prisoner.

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Soft-diamond Specials waiting to move out

Soft-diamond Specials waiting to move out.

Argument is scheduled for today in bankruptcy court in St. Louis over Peabody Energy’s request for approval of $16,200,000 in executive bonuses for six top executives (In re Peabody Energy Corp., Bankrtcy., E. Dist. Mo.). Peabody, one of a series of coal company insolvencies over the past few years, filed bankruptcy this past April, attributing its difficulties to declining demand overseas, particularly from China, low market prices for coal, and the loss of electricity generation demand to cheaper shale gas. These factors allegedly rendered the company unable to service its $10.1 billion debt load.

The United Mine Workers pension and benefit funds oppose the plan, saying it’s both inappropriate and unfair to pay bonuses to senior executives when employees are losing their jobs.

Peabody Energy counters that the bonuses are essential to turn the world’s largest private-sector coal company around and offer stakeholders the best possible recovery. The company claims that the bonuses are tied to its achievement of certain performance benchmarks through the end of 2017. Reuters reports that the debtor’s unsecured creditors’ committee supports the bonus plan and that the U.S. trustee has not objected.

Though unseen, the ghosts of AIG retention-bonuses-past usually attend these hearings. A debtor proposing such a plan must show that it is based on pay-for-performance and not just an executive retention program.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

A week or so ago, the Illinois General Assembly failed to pass Senate Bill 1585, the Exelon Bailout Bill. The bill failed despite a series of full-page newspaper ads and a robocall campaign touting how great the Exelon bailout would be for consumers. Exelon CEO Chris Crane even went so far as to set a deadline for the Illinois Legislature: Unless you pass the bailout bill by May 31, we’ll close two nuclear generating stations (Clinton and  Quad Cities).

Mr. Crane apparently remains unaware how much his threat to kill off two of his own nuclear plants resembles the threat made by Cleavon Little, playing the unforgettable role of new Sheriff Bart in Mel Brooks’s Blazing Saddles (1974).  Just after new Sheriff Bart arrives, the townspeople (nearly all of whom are surnamed Johnson) threaten to shoot him because he’s not quite who they expected. Bart then draws his pistol, holds the muzzle to his own head and threatens to shoot the sheriff (i.e., himself) if the townspeople don’t back off:

Sheriff Bart (as gunman): Hold it! The next man makes a move, the #$%^& gets it!

Olson Johnson: Hold it, men. He’s not bluffing.

Howard Johnson: Listen to him, men. He’s just crazy enough to do it.

Sheriff Bart (as gunman): Drop it! Or I swear I’ll blow this #$%^&’s head all over this town!

Sheriff Bart (as hostage): Oh, Lordy, Lord, he’s desperate! Do what he say! Do what he say!

[SHERIFF BART, STILL HOLDING THE GUN TO HIS OWN HEAD, DESCENDS FROM THE PLATFORM AND MOVES TOWARD THE SHERIFF’S OFFICE]

Harriet Johnson: Isn’t anybody going to help that poor man?

Howard Johnson: Hush, Harriet. That’s a sure way to get him killed.

Sheriff Bart (as hostage): Help me, help me……somebody help me!

Sheriff Bart (as gunman): Shut up!

Just as Sheriff Bart managed to escape unscathed, so we learned the next day that Exelon and the legislature are working on a “new compromise” that would prop up Exelon’s two troubled nuclear plants. Expect to see Mr. Crane reprise his role as Sheriff Bart, with a renewed threat to euthanize the Clinton and Quad Cities stations, in the weeks leading up to the next legislative session.

In earlier posts, The Sparkspread explained how, more than a decade ago, the top management of Exelon embarked on a grand plan: strip the generating assets (i.e., nukes) out of the stodgy, old, regulated utility and transfer them to a shiny, new generation subsidiary called Exelon Generation. After all, it wasn’t as if the regulated utility was going to open up new markets. Its service territory was fixed. It was much better to have the generation assets in an entity that wasn’t regulated, that could make profits in a competitive wholesale market, and keep those profits without a regulatory say-so.

Once Exelon had the nukes in a separate subsidiary, it stood to earn some hefty profits because its generation costs were very stable. Sure, it had to refuel periodically, and operations and maintenance are not cheap, but on a relative basis the cost of nuclear generation was very low relative to natural gas-fired generation, and the latter sets the electricity price at the margin in this market. All of this was planned before the advent of fracking, when the price projections for natural gas all looked like hockey sticks. Well-informed market players feared that the U.S. wouldn’t have enough natural gas, and they predicted that we’d have to import it. So Exelon placed its bets. One could almost see Adam Smith smiling down from above. What could go wrong?

A couple of things, it turns out. First, the fracking revolution in natural gas turned lots of assumptions about the U.S. energy picture upside down. The U.S. with a natural gas shortage? Not now. We’ve got more than a century’s worth of supply at current consumption rates, enough to export it with the right facilities and markets. Between 2005 and 2012, natural gas production increased almost 30%, a rate of increase that triggers comparisons with the Golden Age of American Industrialization between the end of the Civil War and the turn of the 20th century. Heady stuff, but the cloud in this silver lining is that decreasing natural gas prices translate to decreasing wholesale electricity market prices.

Then the Great Recession Double Whammy hit, and the economy tanked. Production, and therefore energy demand, went down. Nowadays the Federal Reserve issues its monthly Panglossian pronouncements that the recession is over, unemployment is down, and everything is fine. The 2016 presidential primary season showed that neither the Fed nor anyone else in D.C. has a clue about anything outside the Beltway. The American voter has seen enough bogus economic data swallowed without question and regurgitated by bogus financial news media. The continuation of low market electricity prices says it all.

Make no mistake, Exelon’s fighting a war on two fronts: low energy market prices in the east and sluggish economic recovery in the west. But Exelon, its management, and its shareholders assumed that risk. They wanted to be entrepreneurs, and the Illinois General Assembly granted their wish with the necessary amendments to the Illinois Public Utilities Act.

Exelon played the market, and it lost. In Donald-Trumpese, Exelon is a “LOOZER,” just like all those poor slobs who keep demanding an increase in the minimum wage. (The nerve!!!)

When the energy market was high and Exelon Generation was making money, Crane was pleased to talk about the glories of the free market, private enterprise, shareholder value and the privatization of profits. But now that the market has turned against Crane all that shareholder value malarkey has to be swept under the rug like something unmentionable that you don’t want your dinner guests to see.

To everything there’s a season, and the time for privatizing profits is over. Now is the time for socializing losses. Crane has to talk about how “the market is flawed,” how the Exelon Generation nuclear fleet is imbued with a vast public interest, and how the citizens of Illinois are no longer just chumbolones (to borrow a John Kass-ism). Now, they’ve been elevated to the rank of “stakeholders.” Funny how that works. Crane’s worshipful attitude towards ratepayers increases in direct proportion to the magnitude of the public subsidy he’s looking for. To bail out Exelon, the Illinois General Assembly needs to hit ratepayers with a new charge called a zero emission credit. He didn’t get it this time around.

The Exelon Bailout Bill perfectly exemplifies the type of crony capitalism (or, more appropriately, Craney Capitalism) in which Exelon’s sycophants in the General Assembly are only too happy to use the state’s power to subsidize Exelon and protect its privatized profit model from the perils of a free market whose virtues it extolled when the market was high.

No wonder Trump’s popular.

 

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McClendon's vehicle being removed from crash site 3/2/2016

McClendon’s vehicle being removed from crash site 3/2/2016

CNBC News reports that Aubrey McClendon, the high-flying former CEO of natural gas player Chesapeake Energy, died in a car crash this morning in Oklahoma. Federal prosecutors indicted McClendon yesterday for alleged bid rigging on natural gas.

Reports state that McClendon  “pretty much drove straight into the wall” at high speed, causing his vehicle to ignite and burn immediately.  McClendon cultivated his reputation as a risk-taker in the natural gas arena, though one too many of his gambles went south. He was featured in a 2011 Forbes article as the “Reckless Billionaire”:

2011 Forbes Article re McClendon: Reckless.

2011 Forbes Article re McClendon: Reckless.

Though a definitive coroner’s determination won’t be in for a while, this has all the earmarks of suicide. If he had decided to whack himself, there were certainly other ways to do it that would have been faster, like a gun, for instance. It’s reasonable to ask whether there’s a life insurance angle here: life policies generally provide that the insurer will not pay the face amount if the insured commits suicide. So even though guns are quicker and more certain, a gun and a dead man, all by their lonesome, leave no doubt that the death was a suicide. Driving into a wall, on the other hand, could be an accident. McClendon was always a game player, and it would not be surprising if this were one last dice throw.

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