Electric Utilities

Tom Shepstone
Shepstone Management Company, Inc.

….

…. 

Big Electric Utilities are wallowing in corruption and incompetence. They’ve no competition and get to power over consumers. We award them the Vogtle Award!

As I noted here in talking about the Edison Electric Institute, competition is the enemy of corruption, which is why Big Electric Utilities despise it. Indeed, the Institute is quite fond of honoring scandal-tainted members, as if to honor corruption and push competition out of sight and out of mind. Exelon and FirstEnergy, for instance, both got awards despite hundreds of millions in fines related to bribery scandals, but they’re hardly alone. Big Electric Utilities are rife with stunning examples of cronyism, mismanagement and corporatism at the expense of ratepayers. They deserve an award for operational excellence, in fact, that we will kindly name the Vogtle Award!

Why “Vogtle Award” you might ask? Well, let me more specifically explain, beginning with a brief explanation of the corporatism about which we talk quite a bit on this site. Corporatism, simply described, is an unholy alliance of government and industry, where industry enjoys anti-capitalist benefits such as non-competitive contracts, subsidies and preferential regulations and, in return, does the government’s bidding in supporting in terms of socialist type policies and feeds graft back to governmental officials. It is the very opposite of the capitalism envisioned by Adam Smith, who knew business would always prefer not to have to compete:

The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers.

Big Electric Utilities fit that description, of course, and no project better illustrates the danger of ignoring this fundamental truth than Project Vogtle, which is a Georgia Power venture. Georgia Power is part of Southern Nuclear, which has operates a nuclear power plant at the site Plant Vogtle since 1987. Some 12 years ago it was given approval by Georgia’s Public Service Commission (PSC) to construct two nuclear reactors at an estimated expense of $14 billion. That cost has now jumped to $26 billion; an 86% increase as against a mere 20% increase in the Consumer Price Index. The cost of the Plant Vogtle project has, in other words, grown more than four time the rate of inflation!

That’s why it’s the Vogtle Award, but here is the full roster of potential candidates for our initial award (click for larger version):

Why has this happened? The obvious answer is this; there is no accountability in Big Electric Utility monopolies. It’s true the government and the opposition of antis have delayed the project but how does that explain cost increases so out of synch with inflation? It doesn’t. This is mismanagement on a Big Electric Utilities scale. Someone misjudged the time and money involved at the front end or they deliberately underestimated the true costs in expectation that would be an easier sell at the front end and the PSC would be forced to give them more later in the way of rate increases to cover the gap.

And, who pays for this? Well, ratepayers, of course. The PSC awarded Georgia Power a $1.77 billion rate increase in 2019 and now they have been given another $224 million effective next June, but, have no fear we’re told:

The PSC voted in August to stop approving incremental cost increases incurred at the long-delayed, over-budget nuclear expansion at the plant south of Augusta. Instead, the commission postponed deciding how much of the cost overruns Georgia Power customers will ultimately have to bear until after Unit 3, the first of the two new reactors, is completed.

Surely that’ll take care of everything, right? We know how this will go and so does everyone else; the ratepayers will pay because there is no one to pay unless it’s taxpayers and they’re the same people. Such is the world of Big Electric Utilities and our friends at the Institute for Energy Research captured it nicely here a few months ago:

Anti-nuclear activists have seized on the Vogtle fiasco as an indication that the technology is itself cost-prohibitive. But, a more discerning reading of Vogtle’s history doesn’t call for an indictment of nuclear energy; it calls for an indictment of the cronyist utility regulation model that plagues Georgia.

The Vogtle fiasco exhibits the pitfalls of a system that insulates investor-owned utility companies from the incentives of profit and loss. In Georgia’s system – and those in about two dozen other states – a utility monopoly negotiates with the regulatory board rather than with its customers, and is granted a guaranteed rate of return on its investments. Because the regulatory board, the Public Service Commission, is Georgia Power’s primary audience, the customer feedback mechanism is clouded…

…the incentives allow monopolies like Georgia Power to spend profligately on new projects, increase expenses for the state’s households and businesses, and yet continue to hum along. In fact, with its proven ability to convince the Public Service Commission of the need to bake capital costs into the base rate for customers, Georgia Power is incentivized to opt for projects, like nuclear, that are capital intensive…

…Southern Company’s stock price is higher than ever and it has provided shareholders a growing quarterly dividend for 20 straight years. If we need any further evidence of the perverse incentives in electricity, Southern Company’s overall financial success should seal the case.

Georgia needs Vogtle to pull through, but going forward, the state ought to reckon with the cronyist utility regulation model that has created this debacle. The model has allowed Southern Company shareholders to get rich while Georgians see their household budgets pinched by the pass-through of Vogtle’s cost overruns.

See what I mean? See why we’re calling our Big Electric Utilities award the Vogtle Award? But, these are far from the only examples or candidates for the award as our graphic above indicates. More on those in our next post on this issue! Meanwhile, it’s time for accountability from Big Electric Utilities and dismantling of all this corporatism.

Follow Us on MeWe and Join Our
Natural Gas for the Future Group

Also, be sure to give us a thumbs up below
and share on social media
if you liked this post!