Dear Citizens and Elected Officials:
Preface
We now live in a time of politics dominated by the Populist Right. It remains to be seen if there can be a successful Populist Left, but the Mid-term elections were a good start, with their now being 35 Representatives signed on to the call for a Standing Select Committee for a Green New Deal. (Updated Dec. 19, 2018).
The Conservative-Libertarian Right is already turning their highly distorted view of the political spectrum into a spotlight upon pending progressive overreach, their handling of Alexandria Ocasio-Cortez’s election being a strong clue for what is to come. It’s obvious how Sean Hannity, Rush Limbaugh and Dinesh D’Souza will approach the calls for a “Climate Emergency” and “Climate Mobilization”: by demonizing the New Deal and its future Green evolution. The documentary “Death of a Nation” is a preview of what is to come from their like. The warnings for missteps are there, on preview in the streets of Paris with the Yellow-Jackets.
The progressive-left’s response needs to be as fully participatory as it has ever been, and then some: a Populist Left response. I have written this essay in that spirit, to give a full response to the push for renewable energy, and its obstacles, and to give a sense to the full time ecological left how their policies might look to the “average citizen.”
Introduction:
On Saturday, October 6th, I came across an article in the Email version of the Clean Economy Weekly that caught my attention: “Huge Virginia Solar Farm Chugs Forward,” by Dan Gearino. And ever since then, I’ve been digging, sorting and weighing, trying to understand not just the outlines of the largest solar “utility scale” project east of the Mississippi, in Spotsylvania County, Virginia, some 60 miles southwest of DC, but also the details, the why and how of what will be the fifth largest solar photo voltaic facility in the country, if and when it actually gets built.
If Spotsylvania County does not ring any bells for you, it was the alleged home of the literary and TV series character of Roots, Kunta Kinte, aka Toby Waller, who was sold from Maryland into Virginia slavery in the 18th century. The county was also home to some of the Civil War’s worst killing fields: Fredericksburg, Chancellorsville, Wilderness and Spotsylvania. I don’t know if the project’s sponsors or the builder welcome those associations, but my readers shouldn’t be wandering about, disoriented, in a geographical “wilderness.”
The project is being proposed by sPower, which is owned by the AES (Applied Energy Services) firm and the AIM Company - Alberta Investment Management Corporation. But they’re not putting up the money, some $650 million dollars: that’s being supplied from some other major investment players. But more on that later.
Let’s start with the major outlines of the project, which gained a “Certificate of Public Convenience and Necessity” from Virginia’s powerful, but contested, State Corporation Commission, in August of this year. However, Spotsylvania County appears to be getting its back up over “who is dictating to whom,” and the timeline to begin construction is being pushed back well into 2019. Yet I doubt the project will be blocked: the forces behind it, environmental forces and those of internationally famous corporations, are just too powerful to resist. And that’s despite the area’s Richmond and Congressional delegation being all Republican, no surprise for rural Virginia: not exactly the renewables crowd. They’ll take the growth though, even if it has to be solar.
Here’s a sketch of it: at full build out, anticipated to take just a year once the county green light is given, there could be as many as 1.8 million solar panels on 3500 hundred acres, with 2,850 acres preserved, out of the total project area of 6350 acres, which is about ten square miles. Much of this land has been recently timber-harvested, and from pictures I’ve seen, it looks to have been clear-cut. In two months of reading, I’ve haven’t heard of an environmental stopper, only some uncertainty about the source of water and whether there will be herbicide spraying to keep the panels clear. In a conversation with the project manager, though, it sounded like they were going for native plants for pollinators under 2 feet in height; I said that was a great idea, good for all sides. Some press accounts have described the current landscape as a “desert.” That would be a “biological desert” by my reading of it. But perhaps that’s a self-serving spin to head-off opposition. Maybe some of the field honchos from the Maryland Biodiversity Project could take a little side trip and poke around for us, just to make sure.
The projected 500 MWs of power, which makes this project more than double the size of the largest utility-scale projects in Maryland, will be divided into “Special Purpose Entities,” a legal and financial preference of the funders, apparently, with some practical implications as well, like serving as firewalls for financial or technical stumbles. The largest solar consumer will be Microsoft at 315 MWs; then an Apple Consortium for 165 (the other members are Akamai, Etsy and Swiss Re) and finally, for the smallest slice of power, just 20 MWs (which is a lot, compared to many utility level and “community solar” projects in the region; the equivalent, on an annual basis, of the power used by 49,099 homes), for the University of Richmond. The words used here don’t accurately describe the way the solar PV generated electricity will flow, which is into a substation and not directly to the individual corporate buyers. Once again, “more on that later.”
And now, a warning for the reader. This essay is like any good investigation in the legal world; it started out with a big pending event, a surprising one, especially the “where” of it which was not very well explained in casual press accounts. My early hope was that by focusing intensely on a curious project, broader truths about renewable energy, and energy politics, would be uncovered.
Well, that was supposed to be the general direction, but the further I ploughed into the project, and Virginia energy matters, and with Maryland’s troubled renewable year in the winter of 2018 also on my mind for a frame of reference, the more I felt I was going down a bleak and dusty road in rural Texas, one from the set of True Detectives. And like any good detective, I’ve let what I found, and found to be shaky, or murky or just plain opaque, guide my questions, and pathway, which is far from the straight and narrow, but hopefully still guided as much by reason as political intuition.
Oh yes, one more thing: this work was shadowed by the fall weather, meteorological and political, that we all lived through, where the nation’s attention seemed to be jerked, as on a tether, from topic to topic, from disaster to disaster, from dire climate report to dire long term economic report, from drowning to burning to legal Supreme Court detective series where “who do you believe, and “who are your corroborating witnesses” became the questions of the day for nearly two weeks.
“We hold these truths to be self-evident” is a phrase which will not be found in the proceedings of our electricity markets. Very little I came across was “self-evident.” I tried to put myself in the position of the average citizen looking at what I found, the language of the financial world come to the world of electrical and systems engineers, to trading markets in timed layers with a very strange bidding system. In 2007-2010 I plunged into the exotic universe of financial derivatives to understand what happened in the Great Financial Crisis. That helped here a little, but the electricity markets I looked at are perhaps even more magical – and dangerous even. What does “free market” mean today in energy markets? Who gets “punished” with market “discipline” and who gets rewarded by state interventions, forgiven like the Bankers? Which subsidies are fair, and which distort market outcomes, since it looks to me as if every major interest sports one form of subsidy or another, open or hidden.
And the broader question, raised by Karl Polanyi in his magisterial work of 1944, The Great Transformation: can anyone live with the pain and disruptions of “pure free markets,” if they exist; doesn’t every interest scramble to avoid the bleak dichotomy of “winners and losers?” Well, losers, surely. And what happens in politics when there are more economic losers than winners? What if it turned out that markets were no longer our servants, but the instruments of powerful elites and economic oligopolies which bent them as far as they could to first deliver benefits to themselves, first helpings, while society got the leftovers? That sounds pretty harsh, but there’s considerable research built up in academe to show how easy it is to game, if not “rig” electricity markets. Rigged is a “fighting word,” isn’t it, but two very different portions of the political spectrum use it, and therefore proceed very differently from the same diagnosis. The issue of just who is doing the rigging is crucial: “government,” or government “captured by powerful private interests” is not quite the same, is it, to understate what is at stake from that point on.
Polanyi saw with great foresight that it was not just human arrangements that are deranged by market fundamentalism; nature is threatened as well, and if he saw that clearly already in 1944, what would he say today? That’s one of few questions at hand here with a resoundingly clear answer: we have to prevent the destruction of Nature, of as much of it as possible.
This all needed to be pondered, weighed, and in the end, painfully sifted, with forensic anthropologists and cadaver dogs sniffing through the ashes, as if it were the next to last episode of True Detective.
Let’s get started.
PART TWO: The Illusions of Electricity Markets
Why Big Solar Decided on Virginia, not Maryland
That was the question which drove me to look closely as to why the state which had ranked only 20th nationally at the end of 2017 in solar “penetration,” just .4% of its electricity generation being solar, would leap ahead, symbolically at least, of much-heralded Maryland, which ranked 14th at 2.9% by embracing such a huge project. Although the solar industry appeared to be knocking at the door for more capacity in Maryland, especially its utility scale projects near the population centers, its successes were triggering a collapse of the sRECs market and throwing the Annapolis legislature into a spell of hesitancy about passing higher renewable targets and timetables. And, as previously mentioned, I was driven by a background curiosity: in our losing national effort to slow or stop global warming, renewables were a big part of the struggle: part scientific, part political, and of course, part economic, as we have seen. Yet the average citizen, it seemed to me, deserved better than much of the press coverage I had seen over the past year. I read and then write to explain to myself what didn’t make sense from the swirl of arguments in the public sphere, and I write from that dangerous borderline between advocacy – and neutral journalism. But before either direction wins out, there’s a lot of detective work involved.
And here is what I found out about “Why Virginia” and “Not Maryland” for the largest solar farm proposal east of the Mississippi – some have written it “east of the Rocky Mountains.” It turns out that it was the federal government’s exploratory policies and funding, for defense purposes mainly, into fiber optic networks in the late 1960’s and early 1970’s that laid the foundation for this startling fact: that 70% of the world’s Internet/Cloud traffic now passes through the servers, data storage centers and related infrastructure around the town of Ashburn, in Loudoun County, making it and adjacent Prince William the nation’s leader in this aspect of The Cloud.
I’ve lived in Maryland since 2005; how come I never heard of this before, since economic rivalry with Virginia is part of the background discussion of tax policy and much more in Annapolis? When I lived in Rockville, just outside the fabled, or infamous, “Beltway,” I did hear about its “Hi-Tech Corridor” along I-270 and the Rockville Pike, but, it seems, that was already being eclipsed by what was happening just across the Potomac River. What is happening in Virginia is a variant on “Silicon Valley”, but not focused as much on the raw research and innovative aspects of the great Californian academic centers and what they spin off - rather upon the infrastructure that the whole Cloud depends upon, and the companies that need vast data storage capacity.
I suppose it’s fair to think of this region, then, as the equivalent of the nation’s “electric grid” for The Cloud, but compressed into a very small area, one that is comparatively secure from hurricanes, earthquakes and wildfires. And in a political state which supplies substantial tax breaks for the Cloud’s capital investments and equipment, subsidies which started in 2009 and now have been extended out to 2035 to accommodate the decades long contracts that the industry leaders demand. And the lenders too, apparently. But they’re not for struggling start-ups, to put it mildly: the tax breaks kick in at a high threshold of project size: $150 million worth of equipment. It’s not a determinative tax break, because the trend to store data in the region was already well under way, set in motion from the decisions of one after another of the “Who’s Who” of modern IT businesses that felt they had to be in Northern Virginia, and which were now pushing out into more rural areas as the available building space shrinks in that compressed corridor (over 10 million square feet already built with more on the way): Amazon Web Services, Facebook, Google, Microsoft, Rackspace and “about 2,900 other technology companies.”
A CBS Sunday Morning segment from a year ago, in the fall of 2017, captures a good part of the mystery of this region, and also disclosed something else rather startling: that Amazon is the nation’s leader in web and storage “services,” bigger than the next 14 competitors combined, and AMS – Amazon Web Services - is generating more profits for the parent company than the much better known aspects of Amazon’s operations. I also seem to have developed a taste for non-specialist, that is, humanities’ commentary on the very technical doings of the grid and The Cloud. Hence the insights of an English Professor at the University of Michigan, Tung-Hui Hu, who has written a book on digital culture, “A Prehistory of the Cloud,” caught my attention, to go along with the anthropological view in “The Grid” from Gretchen Bakke.
Hu, who has written three books of poetry, pointed out that the power needs of that Cloud, if aggregated as electricity demand, would be the fifth largest “national” market in the world. And in echoes of the debate I have been seeing over how expensive it is to meet peak demand loads, to keep expensive extra capacity idle, but “at the ready,” then used for only an hour or two, Hu commented that these data centers “‘are just computers sitting around doing nothing for 96% of the time…and that’s because they’re waiting for a spike in traffic. They’re waiting for the next music video to go viral. It’s those exceptional moments which they have to build a capacity for…’”
Here’s the written version of the CBS feature, entitled “The heart of ‘The Cloud’ is in Virginia,” https://www.cbsnews.com/news/cloud-computing-loudoun-county-virginia/ and two more background links about how just a small portion of the state has captured that astounding 70% figure of Internet Traffic; https://datacenterfrontier.com/northern-va-ready-for-a-data-center-building-boom/ and https://datacenterfrontier.com/virginia-extends-data-center-economic-incentives/
Now the choice of Virginia for a huge solar project was making more sense. But there were still a lot of loose ends. Dominion Power, I was learning from some Virginia advocates for solar, like energy attorney Ivy Main, has been a major roadblock until very recently, deliberately lagging behind other regions in its reluctance to commit to more renewables. And their baseline electricity generation mix was the “same old-same old” we find so often, as in Maryland: old coal, on the way out, nuclear too, the oldest plants at least, with natural gas stepping in to fill the gaps and still way ahead of renewables for baseline power, and for use as “peakers,” these traditional sources supplying about 90% of the electricity generation, a figure which holds for the much larger geographical universe of the PJM power grid.
But the main IT-Cloud players in Virginia were leaning now in a different direction, and it is my clear sense that powers like Microsoft, who made it an internal, then very public corporate priority to get to 100% renewable energy sources for their energy needs, could no longer be ignored; not without running a long term risk to the overall business climate that Dominion had for so long shaped, the major power in Virginia’s state house politics in Richmond the state capital. Indeed, Dominion’s power looms so large over the state that Larry Sabato, a nationally known political scientist at the University of Virginia stated very bluntly that “‘no single company even comes close to Dominion in terms of its wide-ranging influence and impact on Virginia politics and government…’” Here at https://energynews.us/2016/06/06/southeast/in-virginia-advocates-point-to-utility-as-key-solar-obstacle/
Dominion is so powerful that one of the state’s oldest and largest newspapers, the Richmond Times-Dispatch, ran a three part series in the fall of 2017 entitled “Dominion Rules,” here at https://www.richmond.com/news/special-report/dominion/ . That rule is under pressure from a number of sources, as the company is facing more serious opposition from citizens over its troubled toxic coal ash ponds, electricity transmission line routes, its 600 mile Atlantic Coast Pipeline to move shale gas to market, and its foot dragging over solar initiatives. While Dominion has clearly had the upper hand in Virginia power politics over the past 40 years or so, it is in reality but the strongest leg in a more complex triangle of power, the other two being the state legislature (and a moderate new Democratic governor, Ralph Northam)……and the State Corporation Committee, a cautious, conservative regulatory body founded in the Progressive Era, 1903, to tame excessive corporate monopoly power. The SCC is in a power struggle with the legislature, a legal one in the courts, over just how much its jurisdictional boundaries are subject to legislative overrule. For those who want the details on this landscape, Virginia’s version of “Game of Thrones,” they can’t do better than the Richmond Times series and Ivy Main’s blog, “Power for the People,” here at https://powerforthepeopleva.com/author/ivymain/ . Two in particular will give you an outline of the power politics:
https://powerforthepeopleva.com/2018/09/28/after-the-grid-mod-bill-the-scc-wants-to-know-how-much-authority-it-still-has-over-utility-spending/ and this one in October: https://powerforthepeopleva.com/2018/10/22/theres-a-lot-to-like-in-northams-energy-plan-but-missed-opportunities-abound/
It’s pretty clear from Ivy’s close focus that Dominion is granting the state a few more rays of solar generated power, but that the crucial grid planning process is still in its hands, not the legislature’s, much less a more participatory and representative slice of citizen/civic organizations’ policy views around in the state.
Dominion Power’s ability to control the political economy of electricity generation for so long in Virginia had its alleged positive side for businesses who needed steady, predictable and preferably low prices for electricity, and weren’t too fussy about the source of that power, and especially that’s been true since the national turmoil set off by de-regulation in the late 1990’s and the rise of renewables in the second decade of the 21st century. That control has been cited by none other than Goldman Sachs, giving the thumbs up on Dominion as a good utility investment. Whether Virginia businesses and residences might have gotten better, lower prices under more competitive arrangements is an open question.
Not quite trusting the accounts I’d read on Virginia’s friendly and low electricity cost curve, I decided to check in with Electricty Local’s state by state comparisons. Here’s what I found. Virginia is not listed as one of 16 de-regulated states, so it’s ostensibly “regulated”; its residential customer rate is the 8th highest in the country at $124 per month; its commercial rate is also 8th highest at $751/month and its industrial 10th at $24,389/month. For comparison purposes, let’s see how Maryland, a de-regulated state, and Texas, also de-regulated, compare to Virginia, the business heaven. Maryland: residential 4th highest at $129/month; commercial 3rd highest at $1060/month; and strangely, industrial rates very low at 45th, $3393/month; Texas, the vaunted home of free enterprise and Republican Right ideology, de-regulated: residential 5th highest at $128/month; Commercial 14th at $668/month, and industrial, at least, complying with ideology, low at 40th, $4750/month, just about a fifth of Virginia’s cost of industrial electricity. And finally, the big solar state, California, still regulated, comes in 42nd ranking very low in residential rates at $88/month; commercial 9th at $742 and industrial 34th at $5561/month. How does one square California’s high generation cost of 15.34 cents per kWh, 8th highest, with such a low residential rate? Answer: something intervened. Maine, a de-regulated state, also has a high generation cost, 10th at 14.66 center pKh, but the lowest monthly residential bill average in the country at $78/mo. As we warned: “We Hold These Truths to Be Self-Evident” – hardly.
I invite economists and statisticians, “quants,” to plunge in and run your analyses and see what you come up with here, with this data: https://www.electricitylocal.com/resources/statistics/ and here https://www.electricitylocal.com/resources/deregulation/
Virginia’s Business Politics Nurtured the Libertarian Right
We shouldn’t be surprised at Dominion’s conservative influence. Duke University historian Nancy MacLean (in her book “Democracy in Chains”) has filled in the broader background for the state, its congenial agricultural soil for raising up the likes of Senator Harry F. Byrd, Sr., a conservative Democratic “machine” politician whose power was the personal and ideological compliment to the corporate power of Dominion. MacLean writes that “No single man has ever dominated a state so completely for so many years, albeit with studied courtliness.” Byrd’s personal fortune was built in agricultural, apple orchards with “rows up to two miles long,” and in a delicious detail for our contemporary political crisis, he was a shameless importer and exploiter of cheap immigrant labor from the Caribbean, specifically the Bahamas.
The Byrd machine of the 1950’s had lots of enthusiastic ideological support for its view of limited federal power and its devotion to unlimited liberty and businesses free of regulation. In 1958, MacLean writes, the Virginia legislature authorized a new entity, “The Virginia Commission on Constitutional Government.” Although clearly some of the impetus for its creation stemmed from opposition to federal initiatives on civil rights, it had a broader constitutional and legal aim: to fight the New Deal’s legacy of federal power and all of its many forays into the regulation of business, labor and, beginning in the 1950’s, civil rights. And again, with strong echoes for our contemporary era of politics, and the Right’s Conservative and Libertarian ideological machines this Commission on Constitutional Government hired journalist Jack Kilpatrick, as its chairman of publications…and he ensured that the group’s publications reached every state legislator and governor, every member of the U.S. Congress, federal judges, bar association, business leaders, chambers of commerce, town and law school libraries beyond number, and daily newspapers and national magazines… (Editor’s Note: My emphasis.)
Lest this seem a too quaint foray into the vast nostalgic possibilities of “Old Virginny,” let’s remember that the hoped for final demolition of the New Deal, and all its works, was clearly articulated by Newt Gingrich, elated at the possibilities of Donald Trump finally completing this long-standing Republican dream, their Holy Grail, when he spoke at a forum in December of 2016. And of course, liberating energy markets from the regulated monopoly structures of the New Deal era was part of the ideological agenda of the Right and the “New Democrats” of the 1990’s.
Actually, the thrust of MacLean’s book, its main focus, is on the career of economist James M. Buchanan (1919-2013), but that career, it turns out, is also rooted in the business culture of the state of Virginia, in the dynamics set up by the Byrd machine and its domination of the legislature. Thus Buchanan was able to find financial and ideological support in key Virginia colleges, which encouraged Right-Libertarian think tanks to flourish, as the yearly markers of Buchanan’s career demonstrate: University of Virginia, beginning in 1956; Virginia Tech in 1970; and George Mason University in 1982. MacLean makes it clear that Virginia’s business community was active, if not dominant, in setting the tone in Richmond, and in the modern, famous suburban boom around Tyson’s Corner, and it also appears, at the University of Virginia and George Mason, with substantial national Right/Libertarian money flowing to support the “independent” institutes that nurtured Buchanan.
I call attention to these bright conservative ideological threads in the national and Virginia political carpets because fighting global warming and the struggle for a decarbonized, renewable driven energy sector has become inseparable from our great ideological divides. It is always the fondest of hopes of non-partisan, bi-partisan conservationists that they can win support from all portions of the political spectrum, like they did in Maryland to ban fracking. However, the better illustration of those illusions is their inability to thwart the fracked gas juggernaut in both parties as the dominant replacement for nuclear and coal baseline electricity generation. That’s how I read the flow of the matters at hand in this paper, in Maryland and Virginia, and under the regional umbrella of PJM, a chalkboard in the national drama. I’m keeping the erasers handy because the dynamics are fluid and shifting as I write, full of “double movements.”
What’s in a Contract for Differences, Virtual Power Purchase Agreement?
In good part, I feel like an archeologist or geologist in the 18th century, scientific detectives, looking closely at the artifacts, the rocks and fossils, as clues to a broader history unfolding, and perhaps leading to an interpretation which will be very upsetting to the reigning “theological” powers - religious and secular. Thus my close scrutiny of the “official” documents issued by both sPower and Virginia’s State Corporation Commission for this massive Spotsylvania County project. The more obscure the language, the more interested I became in the sources of, and necessity for, the obscurity. Let me bring this down to the level of the language itself.
Hence let’s visit sPower’s own document from April of 2018, trying to explain why the 500 MW of solar power to be generated from the 1.8 million panels in Spotsylvania County, VA needs to be broken up into at least four independent projects with their own purchasers and contracts. It raises my worries that our electricity grid is turning into the 21st century version of over-the-counter derivatives from the late 1990’s, which culminated in the Great Recession and Financial “Seizure” of 2008-2009. Let’s chew upon this paragraph then, which raises the ghost of price arbitrage:
Entities that purchase renewable energy require that their projects are independent of other entities. Each project is required to generate a certain amount of renewable energy over a period of time. The renewable energy purchaser then makes a payment at an agreed upon contract price. Adding to the complexity, each renewable energy purchaser may structure their contract to pay for renewable energy at different rates throughout the day.
In the very next section of this corporate document, we get another layer of rationale for breaking up the project into several LLC’s. Notice that the banks’ wishes are front and center, and a list of them is provided, but the actual banks funding this project are not named, their identities are kept “generic.”
The reason for creating separate LLC subsidiaries is because power purchasers and banks that invest in solar energy projects (e.g., JP Morgan, Wells Fargo, Goldman Sachs, Citigroup, U.S. Bank, PNC Financial, Keybank, etc.) specifically request a special kind of financing called ‘structured financing’ for separate portions of an overall solar energy facility…For the proposed Project, the banks that provide financing want each individual project in the name of its own LLC.
The next “artifact” which drew my attention, and puzzlement, was from the Virginia State Corporation Commission – granting sPower its green light, via a “Certificate of Public Convenience and Necessity” in a document dated August 8, 2018. First came a declaration that “none of the SPEs {that’s Special Purpose Entity, the same as the LLC’s mentioned in the bank context above} are regulated utilities” so that they don’t have to jump through the legal hoops required by the traditional forms of power generators. Was that also a way to steer clear of the possible legal/political wrath of Dominion, from treading on their carefully protected turf? And then this nugget of legal euphemism:
The electricity generated by the proposed Project would be sold into the PJM Interconnection, LLC (“PJM”) wholesale market. Each SPE has entered into one or more agreements with third parties for the conveyance of green attributes associated with the energy sold into the PJM wholesale market.
“Conveyance of green attributes?” Why so vague? Why not “buying power from the new local solar farm?” Well, because the SPE’s – that have been set up, that have executed contracts with Microsoft, Apple, Akamai, Etsy, Swiss Re and the University of Richmond, are not selling the solar power directly from their portions of the huge 6350 acre site in rural Spotsylvania, that is, from sPower directly, they’re selling the rights to talk about purchasing “local” solar energy, without actually having a power line from the solar farm into each of these corporate and educational facilities. Is this deceptive? Well, I’ve thought about it, but my answer is no, it is not intentionally deceptive, but it is not quite full disclosure either.
The region is getting, hopefully, 500 MW of solar electricity which it didn’t have before, the biggest proposed utility scale facility east of the Mississippi, if and when the county of Spotsylvania decides to give the go ahead; the timeline being now pushed back well into 2019. But, and this was the hardest aspect to understand: when buildout occurs, the 1.8 million solar panels will all feed their electricity into a local substation owned by Dominion Power, and sPower will sell that power into the PJM grid for variable price bids at “nodes” which they would not disclose to me. PJM offers different geographical selling points for wholesale solar power (and other types as well), and the actual locations which sPower may choose, and it sounded like they would be based on shifting, favorable price differentials, was confidential info both for them and PJM. As we will see later, a nationally known speculative energy broker made a lot of money just in New York State by arbitraging the price difference of these types of entrance and exit nodes.
I exchanged phone calls with the renewable energy manager for PJM and the Spotsylvania project manager for sPower, who were very generous with their time, but I did not succeed in getting return calls from any of the other major players here, including Dominion (we exchanged mutual “scouting calls”: who are you, what do you want to know…?) which claimed it had nothing to do with the project. Which, I came to understand, is not quite the case, although I think I know what they meant: sPower is selling wholesale, at fluctuating prices into the PJM grid, and has executed Power Purchase Agreements (PPA’s) with the major corporate players, but, and here’s the tricky part, each of these players will continue to get bills, their regular electric bills, from Dominion. So Dominion’s response is only half the story.
But wait, I repeatedly asked PJM and sPower, isn’t power being sold twice here, once into the wholesale grid, and again to the corporate buyers? That notion was hard to displace, that seeming “same power, twice sold” aspect. But it turned out, with help from Virginia energy attorney Ivy Main (who works with the Sierra Club) and the Director of Sustainability for the University of Richmond, Rob Andrejewski, that the Power Purchase Agreements were for “Contracts of Differences” or “Virtual PPAs,” not the actual sale of power. It took a while for me to wrap my head around that notion and I visited a number of sites for explanations of these increasingly common types of contracts…and had conversations with other private sector solar generators…to arrive at this understanding. Bear with me as I explain what I learned, because it has significance for the whole operation of the grid and the “market-driven” aspects of price bidding, in other words, the financialization of the intensifying, if not “evolving,” electricity markets. Is it working?
I have my worries, that it is not, as others do. Therefore I decided to revisit the objections of David Cay Johnston, a long time investigative journalist and tax specialist, to see if he had changed his mind. More on that later. See if you have worries too as we walk through this form of electricity price arbitrage, these “Virtual” contracts for “Differences.” It’s not your father’s – or mother’s - energy market from the 1950’s. But that was an era when banking was boring and there was no international currency speculative market to speak of. That would develop after Richard Nixon took the U.S. off the gold standard in August of 1971.
Ok. Let’s review. The Special Purpose Entities are created by and will be part of the corporate structure of sPower, but run independently. They will have different build out times and execute separate PPAs with the various corporate entities I’ve listed here, the big players, plus the University of Richmond. But they will all, apparently, still get their “retail” electric bills from Dominion Power. If you remember, I noted that the banks which funded (unnamed ones) this huge sPower solar project to the tune of $650 million, (a figure which I got from sPower’s project manager, Daniel Menahem), insist, as a matter of funding security, that sPower develop mutually satisfactory agreements with their corporate power “purchasers”: price hedging assurances, actually.
These Contracts of Differences, or Virtual PPAs, work this way: if the wholesale price of power drops, thereby threatening the profitability of sPower, which is a wholesale seller, and its ability to pay back the $650 million, they (the various SPEs) will get a check monthly at “settle time” for the difference between the lower wholesale price and the “strike price line” which has been agreed to in advance by both parties. I didn’t get a lot of information about why sPower would feel so confident that they would come out ahead in this monthly settlement – but it seems that if the wholesale electricity price is higher than the mutually agreed strike price, they are making more money than anticipated, and can afford to pay some of it to the other side of the contract who are more concerned with hedging against higher prices. I suppose that’s a form of certainty for the funders against lower prices and thus lower revenue for sPower. Therefore the dynamic at work in our market driven electricity market is: fear the “free” market and its prices swings, and hedge, hedge, hedge…you can’t live or profit from great uncertainty.
It also seems to me that it is good work for the logarithmic data experts, masters of the history of prices in the region, as well as what generating capacity is going offline or coming online. Trend spotters must scan vast arrays of data and have current knowledge of market players and their game plans. And the state of competing equipment as well. Knowledge of who must go “offline” and for how long would seem to be quite valuable. And in the projection of trends, weather is now included. Indeed, there is a form of hedging contract for renewable power generators based on weather outcomes. Certainly Microsoft and Apple, and Swiss Re can hire the best experts for their own projections…and it sounded to me like the University of Richmond understands these dynamics, and hired good consultants as well.
But how does this make you feel, citizens, about the coming future of our grid, with many tiered markets for prices, and pure speculation playing a role, and the privy areas of selling nodes, and the Virtual PPA’s? I would think “insider knowledge” would bring quite a premium. The rationale, as we’ve mentioned for the new energy markets, like the financial markets, is liquidity and efficiency leading to overall lower prices and adequate levels of investment. I invite skeptical parties to pour over the data at Electricity local and find patterns I could not get to. I fail to see a correlation, where I looked, between retail generation rates and retail customer bills. Something intervened in regulated as well as de-regulated markets. Are there unforeseen calamities lurking in the complexity? I don’t know about this brave new energy world, but there were real calamities in 2000-2001 in California, and in 2007-2008 in the exotic mortgage securities markets. And who, in the public interest, is really on top of all this complexity?
These complex contracts are really a form of hedging, a hedge against major fluctuations in electricity prices in the wholesale market, a strong echo of Karl Polanyi’s believe that none of the parties in “classical” economic life, farmers, citizens/workers or businesses can live very long with the pain and uncertainty of “pure” free markets. It is like the dialogue about “subsidies,” which is hedged itself: which type of power is getting what type of subsidy, subsidies which are never ending, often appealing, ironically, to alleviating the non-market priced externalities, therefore it’s “clean” nuclear and good renewables slowing global warming, and delivering measurable health benefits …As we will later see, the justifications offered up by the NJ Governor and Legislature in bailing out its nukes (even beyond the state) contained some of the most outrageous green cover stories I’ve ever heard. Nuclear power is a divisive issue among Greens, and so a political establishment favorable to mitigating the business pain of an outflanked, obsolete even, technology, “clean” but costly, has some cover to shield them from staging a more blatant public rescue of nuclear investors “stranded costs.
The Confusion in Energy Markets
This huge solar project slated for Virginia makes much more sense to me now, after this two month journey of discovery about just how much of The Cloud has settled in over suburban, and now rural Virginia. Yet the growing national issue of battery storage never once came up in any of the press accounts nor in the conversations I had with those close to the project. Perhaps that’s because Virginia does not yet have the penetration level of renewables that requires greater attention to them, and the batteries that were mentioned in connection to the data centers and their storage infrastructure occurred in the sense that they only needed to function long enough - minutes, not hours - to allow the diesel powered generators to kick in. Apparently, that part of the Cloud still has its feet in fossil fuel footprints.
Yet I came away from this glimpse into the dawning of solar in Virginia with the sense that change is in the air, though more corporate image and price conscious driven than grass roots citizen powered, but moving in a better direction than the old electricity generation sources. I suppose I could interpret this drift as being a partial confirmation of futurist Tony Seba’s allegedly decisive “Clean Disruption of Energy and Transportation” curve. That’s the convergence of new technologies and massive drops in their cost curves, bearing down on a reluctant Virginia Power which wants to hedge its older generation bets a bit more, but is so heavily invested in natural gas now that it can’t back off in the time frame Seba says is right around the corner for clean “disruptions”- five years.
There is a lot of economic determinism in Seba’s view, and not much politics. Thus great waves of technological change seem to wash over us whether we want them all or not. I asked, after viewing his lecture on You Tube, who was demanding the “driverless” car? I didn’t get a clear answer; except it wasn’t a massive citizen’s movement; it was more a military research challenge from nearly two decades back, with the possibility of displacing human labor of more than passing interest to transportation firms like UPS, Uber and so forth.
Seba’s optimism is in stark contrast to a very powerful opposite view, that capitalism cannot change in time to beat back the challenge of global warming, presented in compelling and stark terms by Richard Smith in his book Green Capitalism: The God that Failed (2016). Great citizen activism, linked to a Green New Deal and the type of all-out economic mobilization the United States undertook from 1939-1942 to win World War II, a “Climate Emergency” which “changes everything” having to do with the way we grow, harvest, mine, produce, consume and dispose of our goods, is necessary, Smith feels. And he’s got growing company.
As heartening as the changes in Virginia are, they are a long, long way from the urgency pouring forth from the pages of Richard Smith, including a new book, not quite yet out, called China’s Engine of Ecological Collapse. Until then, readers can console themselves with a shorter version here at http://www.paecon.net/PAEReview/issue82/Smith82.pdf , just 27 pages, entitled “China’s drivers and planetary ecological collapse.” And a discussion about “The God that Failed” here: http://www.paecon.net/PAEReview/issue76/Smith-et-al76.pdf
Smith’s whole framing in these works was a prelude to declaring a Climate Emergency and all out Climate Mobilization, the mood of the ecological left in the late fall of 2018. It is a very different response, across the board, to the equitable pace of “all of the above,” and a very different view of the roles of “the market” and governmental planning and guidance - dare we say democratic directives - that first have to be won in Congress and the Presidential races.
Time now for some glances back “over the shoulder,” close to where I began in my overview of the American electrical grid: largely, but not exclusively, through the anthropological eyes of Gretchen Bakke. Her hopes were for an a very inclusive grid which could encompass all the fractious elements of America’s energy “political economy” from community solar to wind farms with hundreds of turbines whose blades reach more than 400 feet into the sky, to the spreading tentacles of the pipelines for fracked gas. My worry was this about her work: did she capture enough of the spirit of Neoliberalism, the reigning world view of our age, since at least 1980, one in which markets are not just good, but semi-divine, much better than government in terms of delivering low prices and newly invented goods, and taking the whole globe, via IT, AI, “The Cloud,” container ships and jet travel to alleged new heights of prosperity, no matter how poorly the wealth is shared between nations and within them. It’s fair to say that, along this vector of reason, that the financial markets reached a logical conclusion under Neoliberalism in the crash of 2007-2008: they needed to be rescued by what remained of big government, especially the supposedly neutral caretaker of finance, the Federal Reserve, which ended up playing the role of the “International Lender of Last Resort.” Is something similar in store for energy markets, the increasingly exotic financial aspects of them, the speculative side, the complexity of tiered bidding markets and the strange bidding system? In one sense, the electricity markets can’t have a bad day, at least not on the physical side of the grid: everyday they have to solve the demand-supply absolutes, governed by laws of physics and chemistry; and the precise technical aspects of voltage and the old issue of alternating and direct current, still with us after the birthing pangs of the electricity age, where it was once central, it now being a technical sideshow. But in California, we did get a glimpse of where malevolent speculation, thanks to Enron, might lead; where it actually did lead - to brownouts and some blackouts. So in 2000-2001, I would say yes, that’s where we got a foretaste of the linkage of financial to physical chaos. Have we had other close calls that we haven’t heard about, the equivalent of the failure of Long Term Capital Management in 1998, and its last minute financial rescue by the big private banks? I don’t know and I invite good economists to take a closer look from this perspective.
A Visit with the Electric Market work of David Cay Johnston
Is the American energy economy an exception to the worries of Robert Kuttner, and many other left-of-center thinkers, like Yanis Varoufakis in Europe, who are asking, given the trends of a rising Right populism, “Can Democracy Survive Global Capitalism?” More specifically, can due process, citizen access, and democracy still be found in the powers that supposedly regulate our energy world: FERC, the Federal Energy Regulatory Commission, the Federal Trade Commission (FTC), the Department of Energy, and the regional grid operators, like PJM? Because I found more than a little opaqueness, and complexity (necessary or self-serving?) in my search for answers about this largest solar farm east of the Mississippi, I thought it best to revisit the work of a major figure in American investigative journalism, David Cay Johnston. I first recall his challenging the new world of energy de-regulation (and de-regulation was a core component of Neoliberalism) way back in 2007 or so, when he was questioning the bidding system in the energy markets, where the “clearing price” was not always the lowest, but something quite else, which did not sit right with him.
Now despite having published acclaimed books in defense of sagging middle and working class prospects, and expose after expose on how the economy is no longer run in their favor, as it was in the wake of the New Deal until about 1973, I found his energy critiques today first not in the New York Times, but at the American version of Al Jazeera, and at DC Report.com, a sure sign that his perspective upsets a lot of powerful American interests, much like Chris Hedges, or Richard Smith’s book about “Green Capitalism: The God That Failed.” I could cite many, but the clearest of his articles on our energy markets was this one from May of 2015, “Free Market Dogma has jacked up our electricity bills,” here at http://america.aljazeera.com/opinions/2015/5/free-market-dogma-has-jacked-up-our-electricity-bills.html
Johnston makes three major points in it. In the very first paragraph, he asserts (using the annual data from the American Public Power Association, the APPA) that residential electricity purchasers are now paying 35% more – 12.7 cents per KWh vs 9.4 cents per KWh in de-regulated states vs traditionally regulated states. Maryland falls in the APPA categorization schema as a “de-regulated” state, and Virginia in the still regulated category (which is, as we’ve seen, partly true: the de-regulation failed to raise up generator competitors to Dominion Power…). Maryland is harder to categorize. Both states are participants in the ambiguities if not confusions generated by the de-regulation surge of the 1990’s which 35 states decided not to join, although I wouldn’t bet too heavily on clear distinctions between them.
Why is this the case, Johnston asks? Several reasons, but primarily the way market clearing bids are conducted by the RTOs, like PJM. Unlike the everyday sense of the term for most citizens, bidding here goes not to the lowest bidder, but to the bid which at the last minute clears the market, which I translate to be the last bid that supplies the missing power for the next day’s expected demand – or whatever the particular market’s time frame is. That bid could be way over the regional average of cost of generation across the multiple types of electricity sources, but the clearing/winning bid, with only regulatory limits to cap the truly astronomical-outrageous outliers, then becomes the price at which the other “winning” bidders get paid. This the core of Johnston’s protest, what he feels is rigged against the residential customers, and he’s been consistent in his criticism for as long as I’ve been following him. And I wonder too, about the rationale for the way this system is set up, whether the purpose isn’t to make sure that the increasingly lower costs of renewables (and natural gas) doesn’t threaten to undercut the income flows to the older coal and nuclear generators, and instead, keeps them in the game, an echo of compensation for “stranded costs” – without anyone openly declaring that as a purpose. {Editor’s Note: I also think about the importance of timing for this last clearing bid, which doesn’t have to be the lowest price, not at all; it conjures up the worries raised by Michael Lewis in his 2014 book, Flashboys: A Wall Street Revolt, and the amazing lengths and costs which high tech speculators will go to obtain an edge in transmitting bids…I haven’t seen this worry brought up by anyone else. A secret tunnel was bored from Chicago to New York to shave a few seconds off trading bids travel times…through the Appalachians…a gentle reminder of what our country might be able to do if and when it makes stopping climate change a top priority.}
And Johnston goes further in this 2015 article, attacking the Market Utopianism of the “Chicago School,” by also asserting that the higher prices in the de-regulated markets have not led to greater investment in capacity. Here’s the takeaway assertion, as he climbs inside the fiscal macro-horizons of the de-regulated energy generators:
The only way to keep prices high is to restrict the capacity to generate electricity. That’s the perverse signal a clearing-price auction sends: minimize investment in new power plants and profits will stay high, expand investment in new power plants and profits will shrink. That is so obvious it is hard to understand how Chicago School theorists missed it. Equally hard to understand is the willful refusal of the Federal Energy Regulatory Commission to recognize that the electricity markets are being rigged.
Now let’s see how Johnston’s views match those of the APPA annual data crunching on electricity prices, tabulated to keep track of the argument between regulated and de-regulated markets, a very useful metric. At https://www.publicpower.org/system/files/documents/Retail-Electric-Rates-in-Deregulated-States-2017-Update%20%28003%29.pdf
Here’s their summation for the latest data in prices/residential revenue:
Though the gap has narrowed in both percentage and nominal terms, the original promise of greatly reduced prices has not materialized. Moreover, most of the gains achieved in deregulated states have been in the commercial and industrial sectors.
As I scrutinized APPA’s Table II, I noticed that their focus was a bit different than Johnston’s. Their eye was on the differences between prices from 1997, considered the first test year of de-regulation, and 2017, within each of the two categories, and it came to, to 4.5 cents per KWh increases, the same for regulated vs unregulated.
But Johnston is correct, when we look across the columns between the de-regulated higher prices and lower regulated residential prices, they fluctuate year by year, but hover between 3.6 cents and 2.1 cents. And they end in 2017 at 14.6 per KWh for de-regulated vs. 11.7 per KWh for still regulated retail. So Johnson’s opening paragraph assertion for 2015 falls close to the current range. And though the difference is just a few cents per kWh, when multiplied across the vast national amount of power sold, it translates into billions of dollars of difference for customers.
Hence his column criticizing the judiciary, so far, for not ordering a refund in the ISO New England RTO after what appears to be a strong case, appealed through the courts, against a deliberate, speculative withdrawal of power in an attempt to drive up prices, the infamous Brayton Point Power Station case, a plant which I could see on beach walks when I lived in coastal Rhode Island in 2001-2002. That coal generator was purchased and then shortly withdrawn from service by five former Wall Street energy traders who bought a total of 17 plants in 2014. Ironically, the owner from 2004 to 2014 was Dominion Energy of Virginia.
In Johnston’s estimates, the reverberations of this action, along with the bidding system, will cost New England consumers $3.8 billion in electricity bills from 2017-2019, but all they got from the court system so far is a remand back to FERC, not a favorable judgement or price rebate. Here at https://www.dcreport.org/2018/07/26/reason-blackout-at-d-c-appeals-court/
As we noted, the price differentials are only cents per KW hour in the ongoing policy discussions about regulated vs de-regulated markets, but look how they add up in a matter of just one plant’s withdrawal of generating capacity. That $3.8 billion over-charge, if spread over the nation, amounted to $1,000 per family over a year. Although the court did remand the case to FERC for review, it is not clear whether FERC has the authority, or the will, to order a refund, given the court averting its eyes to the offered expert testimony on the price effects of the bidding in 2014.
Johnston deplores the lack of mainstream media coverage on this case, and the broader issues its absence raises. It reminded me of my own foray into the issue of fines and penalties for large Wall Street firms when I searched the records at the Security and Exchange Commission for the actions they took around the time of the Great Financial Crisis. There was no penalty for repeat offenders, and the same firms had accumulated a shocking number of violations and fines levied, with no cumulative penalties such as those the average citizen is subject to, with, for example, repeat motor vehicle violations.
Enforcement at FERC
After reading about the Brayton Point case, I went scouting, looking for some cumulative accounting for legal penalties in our brave new energy world. Here’s what I found in the work of Richard J. Campbell of the Congressional Research Service, in a report from March of 2016, “Electricity Markets – Recent Issues in Market Structure and Energy Trading.” Here at https://fas.org/sgp/crs/misc/R43093.pdf
Campbell writes that from 2012-2014, FERC handled ten cases of settlements for market manipulation, totaling $448 million in civil fines, and $243 million in “disgorgement” of profits. Among the most prominent were those with Constellation Energy Commodities Group, JP Morgan Ventures Energy Corporation, and against BP America - which has yet to be settled. What I did notice, however in an expanded list of actions against other firms from later years, was the gap between the time of the violations, several in 2010, but where the civil actions were not initiated by FERC until 2015 or later. In a number of cases those charged are not settling but contesting, and apparently ready to use “statute of limitations” violations in protest, in calls for dismissal.
FERC’s own enforcement summary report for 2018, delivered on November 15, 2018 to the Commissioners, declared “DOI (Department of Investigations) staff opened 24 new investigations while bringing 23 pending cases investigations to closure with no action…staff negotiated six settlements of more than $149 million…$83 million in civil penalties and disgorgement of over $66 million in unjust profits.”
I wanted a bit more context from FERC. These cases were brought with an enforcement staff of 184 employees to police the whole nation’s energy markets. I’ve been trying to find out what number is for firms who are now energy traders/speculators, firms which don’t produce energy or transmit it through the high voltage lines or deliver it locally to homes and businesses, the retail level, but are rather the electricity market’s equivalents of hedge funds and Wall Street trading desks. There are just under 5,000 firms registered with FERC who are allowed to sell energy wholesale into the various markets, but this includes many generators, not just pure trading firms. In 2016, FERC was responsible for monitoring just over 8,000 power plants 1 MW or greater in size, owned by some 3,000 companies, but my worries are focused more on the increase in the number of energy trading firms. Here’s why.
Energy Speculation: DC Energy of Vienna, VA
Back in August of 2014, well into our era of de-regulated energy markets, the New York Times ran a story headlined “Traders Profit as Power Grid is Overworked” here at https://www.nytimes.com/2014/08/15/business/energy-environment/traders-profit-as-power-grid-is-overworked.html
The story is about a quiet but powerful energy trading firm named DC Energy, headquartered in Vienna, Virginia, and founded in 2002. In more than a decade’s worth of trading, reporters Julie Creswell and Robert Gebeloff write, the firm has suffered only two quarters of losses. Their employees sign non-disclosure agreements, and it seems they hire the best minds in the relevant technical fields, but not finance. They’re engineers and quants building models and algorithms for computer programs about congestion electricity markets, and the company’s specialists scrutinize data from around the country and the 7 large RTO trading areas to see where their bets might be placed. And indeed, when I checked the registry of firms allowed to sell into wholesale markets, at FERC, on November 26, 2018, DC Energy was there along with an offspring firm for each of the seven RTO regions, all registered in Vienna, Virginia.
Once again, the familiar distinctions between operations in our financialized markets surfaced in this article, of legitimate hedging by energy producers and consumers (like sPower back in Spotsylvania, VA, and the University of Richmond) and the speculative uses to which DC energy’s contract purchases might be put to use, anticipating sharp spikes in prices between two local nodes on the energy grid, in this case, between Port Jefferson and Northport, New York, just 20 miles away. Thus the company’s defense: “‘We believe this type of activity should cause prices to better reflect true costs and thus create a more efficient electricity infrastructure that should better serve the retail customer,’ Andrew J. Stevens, a co-founder of DC Energy, said in an email.”
In counter, “Frank J. Wolak, an economics professor at Stanford who studies commodities, said the congestion markets created perverse incentives because profits rise when grid congestion becomes worse. ‘If traders are making money, then consumers are paying more…the money that these guys are making has to come from somewhere.’”
Conclusion:
It is not a good thing that the nation’s energy markets are so difficult to decipher for our citizens, for, after all, we’re supposed to “hold these truths to be self-evident.” America is a nation that does not like to openly discuss the ideas that lie behind our political economy, what the term Neoliberalism is built out of, its history since the early 19th Century, and that doesn’t help.
Back in July of 2011 I was invited to give a talk on “Why Wall Street Isn’t in Jail” at the Montgomery County, Maryland “Political Forum” hosted by Dan Rupli. I asked a slightly rhetorical question not too far into my talk: Why was it that so many different federal regulatory agencies had failed to spot the problem in derivatives markets for mortgages, along with the real estate bubble; surely at least one should have blown the whistle? I said that the only valid explanation wasn’t that the regulatory agencies had dumb or incompetent employees or leaders; instead, they shared a common mindset, especially the agency heads, and were all creatures of their intellectual age, moving away from the old New Deal era of vigorous public regulation and meek bankers, to a stance where market actors and their innovations always knew best, especially the “brightest people in the world,” the Ivy league educated Wall Streeters. Surely they knew better than the government’s experts, who were paid far less, and therefore the private sector had to be given the benefit of the doubt in policy and regulatory issues – and more, in fact. In other words, I said, there had been a sea change in thinking. We were in a new intellectual era of Market Utopianism, and they, the regulators, were all part of intellectual “capture” under Neoliberalism, the more comprehensive version of “regulatory capture.” After my talk, which was well received, some young attendees came up and asked me about just this point. They couldn’t believe it though: that ideas could have such a powerful hold across the board, that an intellectual era could wield that type of power to close eyes, to reject signs and evidence to make us all believe that markets were self-correcting and infallible. It can though.
Shift ahead now from 2011’s disbelief to late November, 2018, and environmental writer Bill McKibben’s “state of nature, state of society” piece in the New Yorker: “Life on a Shrinking Planet.” He has just outlined the knowledge inside Exxon, since 1977, of the scientific truths about global warming, a decade before a government scientist named James Hansen testified mightily in front of Congress – and got in a heap of trouble. McKibben shakes his pen in disbelief, and poses this challenge: “The mystery that historians will have to unravel is what went so wrong in our governance and our culture that we have done, essentially, nothing to stand up to the fossil-fuel industry?”
He then fills in the “popular” part of the equation, citing the influence of the libertarian novelist Ayn Rand, a Market Utopian if there ever was one. But he makes no mention of Von Hayek or Von Mises, nor the rising intellectual tide in the 1970’s and 1980’s that has marginalized the Social Democratic left, unions, and the role of governmental regulation throughout the Western democracies, starting in Great Britain and then the United States, 1978-1980. In that pretty clear sense, McKibben himself joins my puzzled young audience in scratching his head, missing the power of a movement based on ideas. He acknowledges the role of industry actors consciously distorting the scientific consensus to serve selfish Ayn Randian ideals, but he has to overemphasize this to make up for the missing perspective that the Neoliberal mindset all but rules out the available historical tools to stop global warming. Send a price signal via a price on carbon, the closest we’ll get to a Market sanctioned tool? No, that’s clearly a tax, and Republicans only do tax cuts, not increases.
It has been the failure of a Left Populist response to these developments that has allowed the Populist Right to evolve, and continue to keep the white working class in the climate change denying Republican Right camp, Trump being merely an intensification of trends long observable. For example, McKibben didn’t miss the power of Dick Chaney had to move the just deceased George Herbert Walker Bush (DOD 11/30/2018) into the climate “inaction” camp early in his presidency, when ideas of combatting global warming were just getting some public traction, 1988-1992.
Let’s give McKibben his due, and Elizabeth Kolbert also: they write wonderfully, evocatively, about climate disruption. But to understand our full predicament, we must also turn to authors who grasp not just climate disruption, but intellectual disruption, economic disruption and yes, social disruption, the feeling of abandonment that Rural Red State and De-Industrialized America (and Europe) feels deeply in their bones. To complete the picture we need the works of Daniel Rogers, Naomi Klein, Yanis Varoufakis, Robert Kuttner and Nancy MacLean to demonstrate the interwoven trends which must be overcome to get to Climate Emergency, Climate Mobilization and Green New Deal solutions. In this undertaking, I believe the climate problem fails of a solution that cannot give economic and social hope to those on the verge of “deaths of despair.”
Just as I am finishing this essay, the New York Times contained this ominous report on the French riots, the Yellow Vest Riots, in early December, of rural working class citizens angry over higher environmental taxes, on gasoline, because as it is, they already have empty wallets before the month’s end. https://www.nytimes.com/2018/12/02/world/europe/france-yellow-vest-protests.html?action=click&module=Top%20Stories&pgtype=Homepage
I began working on this essay in early October, thinking that it would be useful to understanding the rose tinted yet stalled climate politics in Maryland to see why it was that the largest solar project east of the Mississippi was going to Virginia and not the Free State. I was hoping also that by putting a “microscope” on this one significant project I would be able to better understand the political economy of electricity markets, as they looked to me, based on what I saw in Maryland, to be in utter intellectual confusion inside the boundaries of Neolibealism: important factions celebrating “free markets,” others holding on to regulation and state interventions whenever markets threatened, Polanyi like, to produce upheavals among the old generators, nuclear as well as fossil fueled, or to threaten higher prices upon the retail rate paying public. The celebrators of markets, the strongest intellectual current in the West, if not the world, since the mid-1970’s, appeared to me not to like the “disruptions” caused, inherently, by their own celebrated notions of the glories of Creative Destruction. If the free market door was thrown open to wind and solar by adhering to the theory, many powerful business interests didn’t seem to want to allow the logical consequences to unfold: their own eclipse. Again, Karl Polanyi had the deepest insights, way back in 1944, born of his experiences in Austria in the 1920’s and 1930’s. He was the senior editor of the Austrian equivalent of the contemporary West’s “The Economist.” He had to flee to England when Hitler came to power in 1933.
Despite my initial narrow intent and focus, the realities contained in the news in this turbulent fall of 2018 keep breaking in with urgent warnings: the IPCC report of October 6, stating that the climate disruptions from just our “already done” 1 degree Celsius rise were here ahead of schedule and more powerful than first thought, and that vast changes in the way we live, our economic life, were necessary to contain the damage and then begin to reverse it. “Massive, unprecedented changes” and turning the economy “on a dime” were common phrases used to describe the situation and the remedy: “…Transforming the world economy at a speed and scale that has ‘no documented precedent.’”
Then came Hurricane Michael, of a high Category Four intensity at landfall on the Panhandle of Florida’s Gulf Coast, destroying most of Mexico Beach and a good part of Panama City on October 10th. Bill McKibben put the damage at $30 billion; even the climate aware, ahead-of-the curve U.S. military miscalculated Michael’s reach and ferocity and lost about $6 billion worth of its most advanced jets and saw the near demolition of Tyndall Air Force Base. Yet the Office of Governor Rick Scott of Florida, told me, nearly two months later, that they couldn’t say how many structures were destroyed and damaged in their state.
And on November 8th, the most destructive wildfire in California history, the Camp Fire, overran the city of Paradise in less than an hour, turning more than 13,000 homes and about 5,000 additional structures into ashes, and at least 85 humans as well, the northern half of other conflagrations raging simultaneously in the southern parts of state.
More than any of the other fall events - the now forgotten Hurricane Florence from September 14th, the IPCC report, Hurricane Michael or the U.S congressionally required “Climate Assessment, Volume II,” its release buried on the Friday after Thanksgiving - the rapid destruction of Paradise by fire made the deepest impression on me, and I think, many others. The dashboard cameras captured images of narrow roads engulfed on two sides by flames, falling trees and power lines, children, teachers and bus drivers, moms and kids in the family car, were in a real life version of Dante’s horrors, or the burning of Atlanta portrayed in Gone with the Wind, or of refugee columns fleeing the Nazis advances in 1939-1941. Here was a human encouraged, if not enabled, force of nature which could not be contained, and just barely outrun (and not by all) and it was captured live “at the front.”
And a ghost legacy from the New Deal’s Civil Conservation Corps has come back to haunt the ashes of what is left of Paradise. The CCC, founded in early 1933, created an 800 mile long firebreak, called the Ponderosa Way, in California and it once transected Paradise. It was allowed to fade into ineffectiveness by subsequent governments. Here at https://livingnewdeal.org/a-firebreak-runs-through-it/#comment-622005
And the cause of the fire? Well, that has taken an understandable back-seat to the drama just described, but it has its lessons as well. The issue is going to court, civil and perhaps criminal lawsuits against Pacific Gas and Electric Co. (PG&E) for failure to maintain its power lines, which are the prime suspects of starting this fire, in two instances, based on their own reports to the California Public Utilities Commission and initial investigation by the California Department of Forestry and Fire Protection, better known as Cal Fire, the front line agency in fighting and investigating the California plague of fires. The reporting has indicated the vagueness of the PG&E reports, but my read on them is this: power lines came down, either from the wind or vegetative collisions, and came down on very combustible material in or near the right-of-way. PG&E is already in deep and similar trouble from its alleged role in some of the fires of 2017. The legal jeopardy has caused a major drop in its stock price. (And yes, the company was the one portrayed in the real life events behind the movie Erin Brockovich.) However, my source in California, Bill Wolfe, indicates that, once again, Polanyi like, government is coming to the aid of a large, troubled corporate entity, and by legislation and public winks, has said the legal tangles of 2017 will be born in part by the taxpayers, with additional market force “buffering” in store for the troubles from 2018. Here https://www.sfchronicle.com/california-wildfires/article/California-regulator-lays-groundwork-for-PG-E-13397247.php and here: https://www.theunion.com/opinion/thomas-elias-will-lawmakers-gift-utilities-another-fire-bailout/
The irony, then, is this. Gretchen Bakke raised this type of problem in her book “The Grid,” where the financial pressures from all the business disruptions of the old business model, caused by “the great de-regulation,” the rise of cheap fracked gas, and renewables, has pushed the always low priority work of mundane line maintenance even further down the utility’s “to do list,” to the point where its neglect is one of the leading causes of local blackouts in the vast infrastructure of “the grid.’ In very combustible California, that’s no minor consideration.
The climate events and official documents, findings of coming troubles from this fall, have intensified the pitch of the climate left, now demanding a Select Standing Committee for A Green New Deal, an outline for the plan it is to produce to deal with what the advocates feel, and this writer as well, is a genuine Climate Emergency and the need for a “Climate Mobilization.” It has also sent me back to reconsider the intellectual and political troubles that Virginia and Maryland electric markets have had in rising to meet the climate disruptions so visible from our windows and windshields: a year where it has been too cold, too wet, too hot, too rainy, and too snowy, with the traditional seasons out of sync.
Neoliberalism, with its market worshipping, may be the dominant intellectual paradigm in electric markets too, but it is the Polanyi like double movements in them to guard against abrupt changes and dislocations that colors the actual policy landscape. The too neat divisions between regulated (15) and unregulated states (36) do not hold up under closer scrutiny: de-regulated Maryland won’t tolerate abrupt dislocations in generator mixture or prices, nor of the sRenewable Energy Credits or retail prices. In Virginia, a state placed by the American Public Power Association in the regulated column, despite what its legislature in Richmond thought it was doing – de-regulating – didn’t see any significant germination of independent power producers under the all-powerful eye of energy (and political) giant Dominion.
New Jersey, with a Democratic legislature and a self-proclaimed very Green new Governor, Phil Murphy, saw, in May of 2018, a $300 million dollar subsidy bill pass at the request of the dominant utility in the state, Public Service Electric and Gas, whose “separate” nuclear generating plants it threatened to close, even though they managed to pass financial muster for the three year ahead “Capacity Market” auction run by grid manager PJM, also in May of 2018. This brought howls of protest from one of the sharpest environmental policy minds, Bill Wolfe, steeped in NJ policy wars: here: http://www.wolfenotes.com/2018/05/moral-imperative-to-fight-climate-change-drove-nuke-bailout/
Wolfe points out that the NJ taxpayer subsidy would be available to nuclear plants owned by the PSE&G offshoot (and Exelon) – out of the state, an issue which has the same feel as Maryland green protests about our Renewable Energy Credit payments going to electricity generators well beyond Maryland borders (not for solar though). Additionally, while this trans NJ aspect of the bailout was apparently not acknowledged by PSE &G to the state legislature – which really didn’t ask, or maybe just didn’t want to know, according to Wolfe, it was readily disclosed in a Wall Street-investor earnings report call.
The distinction between regulated and de-regulated entities, which PSE&G quickly adapted too in the 1990’s by getting out of the “direct” generating business – well sort of – came back in a kind of sad, slapstick comedy routine in 2018, as reported in the NJ Spotlight by veteran environmental reporter Tom Johnson, here at https://www.njspotlight.com/stories/18/01/25/revised-nuclear-subsidy-bill-appears-back-on-legislative-track/ The financial status of the nuclear plants wouldn’t be available to the NJ Division of Rate Counsel – the ratepayers’ protectors, because the nuclear company was “de-regulated,” but it would be privately disclosed to the Board of Public Utilities, the BPU.
Yes, our economy and currently dependent political system is all for free markets and de-regulation, but not for the disruptions that inevitably flows from their workings. I have to ask, since the nuclear industry was given similar state assistance prior to New Jersey’s in New York and Illinois (New York’s bail out, subsidy, to three upstate Exelon owned plants was good for 12 years and $7 billion dollars), why it is so hard, in state budget matters, to get the substantial sums needed to transition workers out of the carbon-fossil fuel intensive industry holdouts, and the nuclear workers as well? That’s surely part of sensible planning and fairness, bailing out other injured parts of society, injured by the Creative Destruction in the electricity generating field, and now by the urgency of the mission to decarbonize the whole economy ASAP: some say it’s a necessity to do so within a decade. But no, state intervention in markets depends on who is doing the asking; when it is for workers and displaced communities, instead, it’s balanced budget politics and Neoliberalism’s austerity that is on duty and heartily invoked. How about Consumer protection at the retail level? Perhaps a little better, because elected officials seem very sensitive to the possible blow-back upon them if it happens, sudden market price upward jolts, on their watch. But maybe retail and business electricity customers are not getting their full or fair share of the de-regulation push from the late 1990’s.
We’ve seen that’s what David Cay Johnston has maintained throughout the years, and he’s earned a lot of merit badges in economic policy analysis over those years – decades, in fact. He’s all for markets, but carefully designed ones. Now here’s the problem: good market designs are hard to find, especially in electricity markets. Take for example this article of his from November, 2006, “Flaws Seen in Markets for Utilities” which appeared in the New York Times. He cites three different studies and four different professors who have found it relatively easy to design models for market manipulation in the electricity bidding process. Have these educated men been hired to consult with FERC or PJM? Are the current managers and regulators of markets interested in the flaws exposed by mere academics? I don’t know, but Johnston’s criticisms have continued right up the present day.
My conclusion: all economic reform, and environmental reform conversations should begin with markets, but they may not end up with them. One has to begin to consider, finally, after all these electric market troubles, that perhaps not all aspects of economic life are adaptable to market solutions, especially ones that have their heads in the Clouds of Market Utopianism, Neoliberal phase. After all, it is agreed upon that in the history of economic thought there are at least some situations, real world conditions, that are the basis of “natural monopolies,” and electricity generation, and especially transmission, were in prior eras, seen as prime examples.
With the climate news battering our senses in the fall of 2018, and the calls for a Climate Emergency/Mobilization mounting, is the pace and ideologically confused handling of change in these electricity markets up to the task before us? President Obama’s “All of the Above” was convenient, bought some time to deal with the muddle and the Polanyi foreseen resistance to dislocation. Our situation now calls for intelligent public planning and a much more rapid shift to retire the old carbon generators, and nuclear, deal humanely with the workforce and community impacts, and intensify, Manhattan Project like, the search for longer and cheaper still battery storage means. And better regional planning within the 7 RTO’s and their grids so that the best physical mix of renewables is adapted, and the parochial outlooks of individual state legislatures is taken into account, but not allowed to cause delay, inefficiency and transition chaos. And all that is just part, perhaps just the first major step in “…Transforming the world economy at a speed and scale that has ‘no documented precedent.’”
I still consider myself a Social Democrat, and admire the insights and politics of Karl Polanyi, but I reserve the right to move further to the left if the current political economy cannot deal with the climate crisis or heal the “coastal-rural-de-industrialized” divisions. The solutions, though, have to come via parties, platforms, policies and elections that are models of democracy and public participation, in collaboration with the guidance of experts. If the process isn’t fair, the burdens equitably shared, and citizens feel they don’t own the proposed solutions, it’s Red States vs Blue States right out of the gate. Therefore, no “forced marches.”
The Conservative-Libertarian Right is already turning their highly distorted view of the political spectrum into a spotlight upon pending progressive overreach, their handling of Alexandria Ocasio-Cortez’s election being a strong clue for what is to come. It’s obvious how Sean Hannity, Rush Limbaugh and Dinesh D’Souza will approach the calls for a “Climate Emergency” and “Climate Mobilization”: by demonizing the New Deal and its future Green evolution. The documentary “Death of a Nation” is a preview of what is to come from their like.
The progressive-left’s response needs to be as fully participatory as it has ever been, and then some: a populist left response. I have written this essay in this spirit, to give a full response to the push for renewable energy, and its obstacles, and to give a sense to the full time ecological left how their policies might look to the “average citizen.”
Good luck with the hard work ahead for us all…
billofrights
Frostburg, MD
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Whitehouse, Tim and Angiola, Gina. “No more corporate welfare for energy firms.” Baltimore Sun. Aug. 6, 2018. https://www.baltimoresun.com/news/opinion/readersrespond/bs-ed-rr-clean-energy-letter-20180806-story.html
___________________________________. “Unbundled: How Renewable Energy Credits Undermine Maryland’s Transition to Clean, Renewable Energy.” Chesapeake Physicians for Social Responsibility. July 2018. https://static1.squarespace.com/static/54949381e4b05fcc6a96c5c6/t/5b55b5351ae6cf630bacf059/1532343614911/Chesapeake+PSR_report2018_72018+%284%29.pdf
Wolfe, Bill. “Nuclear Cynicism.” WolfeNotes.com. Jan. 31, 2018. http://www.wolfenotes.com/2018/01/nuclear-cyncism/
__________. “‘Moral Imperative’ to Fight Climate Change Drove Nuke Bailout.” WolfeNotes.com. May 18, 2018. http://www.wolfenotes.com/2018/05/moral-imperative-to-fight-climate-change-drove-nuke-bailout/
Interviews (All by phone.)
Andrejewski, Rob. Director of Sustainability, University of Richmond. October 16 and 31st, 2018.
Carlis, Jay. Executive Vice-President for Solar Projects and Business Development, Community Energy Solar. October 11, 2018.
Menahem, Daniel. Senior Project Manager, sPower. October 9, 10, & 12, 2018.
Schuyler, Ken. Manager of Renewable Services. PJM. October 9, 2018.
Tashakkori, Cyrus. President, Open Road Renewables. September 4, 2018.
Books and a Long Essay
Bakke, Gretchen. The Grid: The Fraying Wires Between Americans and Our Energy Future. Bloomsbury: New York, 2016.
Block, Fred and Somers, Margaret R. The Power of Market Fundamentalism: Karl Polanyi’s Critique. Harvard University Press: Cambridge, Massachusetts, 2014.
Blyth, Mark. Austerity: The History of a Dangerous Idea. Oxford University Press: New York, 2015.
Galbraith, James K. The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. Free Press: New York, 2008.
Klein, Naomi. This Changes Everything: Capitalism vs The Climate. Simon & Schuster: New York, 2014.
Kuttner, Robert. Can Democracy Survive Global Capitalism? W.W. Norton & Company: New York, 2018.
Lewis, Michael. Flashboys: A Wall Street Revolt. W.W. Norton & Company: New York, 2014.
MacLean, Nancy. Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America. Viking: New York, 2017.
Phillips-Fein, Kim. Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan. W.W. Norton: New York, 2009.
Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our Time. Beacon Press: Boston, Massachusetts, 1944 (This edition: 2001.)
Rogers, Daniel T. Age of Fracture. Harvard University Press: Cambridge, Massachusetts, 2011.
Varoufakis, Yanis. Can the Internet Democratize Capitalism? Naked Capitalism. Feb. 22, 2014. https://www.nakedcapitalism.com/2014/02/yanis-varoufakis-can-internet-democratize-capitalism.html