At Least Green Activists Will Get To Say They Meant Well -- February 28, 2016

See this note of February 11, 2016, regarding MDU and the challenges utilities face.

Now this note from Bloomberg on intermittent energy and utilities and Buffett's comments:

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said subsidized wind and solar power in the U.S. may erode the economics of electric utilities that care little for efficiency.

“The joke in the industry was that a utility was the only business that would automatically earn more money by redecorating the boss’s office,” Buffett wrote Saturday in his annual letter to shareholders. “Some utilities ran things accordingly. That’s all changing.”

Utilities across the country have been grappling with how to integrate wind farms and solar plants into their systems and business models. Cheap power from large-scale renewables has undercut the profitability of conventional electricity generation from coal and nuclear sources. In addition, rooftop solar panels have sapped sales for power distribution companies.

Berkshire is both a utility owner and a producer of electricity from renewable energy. After it pledged in July to almost double its $16 billion investment in renewables, its Nevada utility, NV Energy, persuaded state regulators to raise fees and cut credits for new home-solar customers. Nevada casino operators have tried to break away, saying they can buy cheaper power in the open market, including some from renewable sources.

But Oregon has it all figured out. From The Wall Street Journal: How Utilities Team Up With Greens Against Consumers. Oregonians are learning that electric companies like renewables because costlier systems increase profits.

If you can’t beat ’em, join ’em. This is the attitude that large electric utilities in Oregon have brought to their state’s 2016 legislative session. Threatened with a sure-to-pass ballot initiative from energetic green activists, Portland General Electric and Pacific Power decided to forestall the referendum by cutting a deal instead.

The utilities’ bargain—tucked inside Oregon’s H.B. 4036, which the House passed last week, and S.B. 1547, which it is expected to take up soon—gives the greens what they want: no coal serving Oregon customers within two decades and a huge expansion of renewables to 50% of the power supply by 2040.

What do utilities get in exchange? Oregonians already have little choice in which company serves them, but the legislation restricts competition even further—in case customers of a newly clean-and-green utility have second thoughts when they see their power bills rise. Under the proposal consumers would essentially buy out power companies for their remaining investment in coal plants, as well as cover the projected cost of decommissioning these plants before the end of their useful lives.

The bill also carves out special ratemaking treatment for everything from investments in renewables and energy storage to charging stations for electric vehicles. 

And at the end:

In a paramount irony, the Oregon bill probably will not result in the closure of a single coal plant, even though consumers are being charged for the cost of decommissioning. One utility subject to the legislation, Pacific Power, has a stake in coal plants that serve customers in six states. It could simply reallocate coal-generated power to customers outside Oregon. The other utility, Portland General Electric, co-owns a coal plant with several Montana utilities. It could easily sell its interest in the plant in 2030 or swap its output with another utility for an allocation of hydroelectric or gas-fired power.

At least green activists will get to say they meant well. 

It looks like Buffett will play both sides of the utility coin: tax credits for intermittent energy and steady dividend income from utilities that learn how to play the game.