Why Suddenly Two Mega Utility Takeovers?

Do the buyers know something that we don’t?

By Leonard Hyman and Bill Tilles, Oilprice.com:

Two major electricity industry takeovers were announced within a few days of each other. Energy Capital Partners, a private equity firm, announced its planned acquisition of Calpine, the nation’s largest generator of electricity using natural gas as a fuel. The acquisition valued Calpine at $17.3 billion ($5.6 billion for the common stock plus assumption of $11.7 billion of debt).

Days later, Sempra, a California-based utility, outbid Warren Buffet’s Berkshire Hathaway to buy Oncor, a Texas utility spin off from a disastrous private equity acquisition of TXU (the old Dallas-based Texas Utilities). Sempra’s bid values Oncor at $18.8 billion ($9.8 billion for equity and $9 billion to take responsibility for ex-isting debt).

In the case of Oncor, both final bidders had clear motives. Berkshire Hathaway has cash to invest and Mr. Buffett and Co. have targeted U.S. electric utilities for investment As a relatively large financial player, his investments have to be of a size to make a positive impact. In this case that means making relatively large acquisitions. Small ones barely register at Berkshire Hathaway.

But big electric utilities don’t hit the auction block too often.

Sempra may lack Berkshire’s investable cash, but is nevertheless a solidly credit worthy utility. Its stock sells at an impressive price. If it wants to go shopping for say an electric utility in Texas, it can raise the money.

But let’s take a step back. Why all this seemingly frenetic M&A activity recently? If the U.S. electric utility industry was a river we’d say it sits at the confluence of three troublesome tributaries; the No Growth, the Looming Competitive Threat, and the High ROE (great name for a ranch). And so the utility industry consolidates.

Power generators, fearing the wrath of rating agencies and competitive markets, have been acquiring lower risk regulated electric utility businesses whenever possible.

The power generators, especially the non-regulated ones, haven’t so much consolidated as engaged in a business form of serial reorganization and bankruptcies starting about 15 years ago. Low natural gas prices and competition from wind power have recently combined to deny profitability to this industry. As a result, like the old boll weevil in the song, these financially precarious power generating assets are as a result “just a lookin’ for a home.”




Like other utilities, Sempra requires new asset acquisitions to maintain its earnings growth. And as noted not many “Buffett-class” opportunities arise. Oncor comes to market in a way that’s unusual for an electric utility. A supposedly extremely savvy leveraged buyout firm saddled the entity with so much debt it collapsed. And here we are. But it’s all good. A lot of former management and private investors made a lot of money.

If Oncor is about greed and a rather loose attitude towards regulatory supervision, Calpine is a story of continually unmet aspirations. Formed in 1984 by California engineers and a Swiss holding company (hence the name Calpine), assets grew to $21 billion by 1992. The company went public in 1996 and bankrupt in 2005, one more victim of too much borrowing and not enough revenue.

In 2008, Calpine emerged from bankruptcy, still with a heavy burden of debt (83% of capitalization vs the 50% typical of regulated utilities.) In the ensuing decade, Calpine’s earnings gyrated wildly. Return on equity averaged a paltry 8% — barely higher than the interest and other financial charges paid on debt.

The company did run power plants efficiently. But given its bloated balance sheet and reliance on natural gas as a fuel, it has become remarkably and to a degree inversely affected by the vicissitudes of wind power. Average capacity factor was around 49% , meaning that the facilities produced less than half of the theoretical output — not out of line with other gas-fired generators. The news stories said that Energy Capital Partners valued Calpine’s ”stable cash flow”. Stability appears to be in the eye of the beholder.

Table 1. Calpine Return on Equity and Return on Assets

Table 2. Net income and net cash from operations ($ billion)

We are still left with the question: Why would supposedly clever, ex-Goldman guys like Energy Capital Partners pay $5.6 billion for Calpine’s assets, a 51% premium over the previous day’s closing price? And an 82% premium over book value of the stock?

Buying electric base load capacity in bulk like this is a bet on commodify prices. If long term electricity prices rise, Calpine’s new owners win.

Do the buyers know something that we don’t? Perhaps they have a bullish economic outlook which strengthens their case for surging electricity demand. Or that the trend for renewable generators to take business from fossil-fueled facilities will reverse course now that the Trump administration has taken a stand against renewable resources. Also, the rise of renewables does create a market for certain gas-fired power plants that come on line quickly when renewable output lags.

But electric vehicles are the game changer. We’re talking about the migration of personal transportation vehicles, currently powered by gasoline and internal combustion, to vehicles powered by electricity and batteries. This represents an enormous additional increment of demand for electricity. But how long till it becomes a real economic factor?

Calpine, as a result of its frequent dalliance with financial disaster, has accumulated net operating losses of about $6.7 billion. This translates into about $2.3 billion of tax savings — if the company ever began to earn enough to pay taxes.

We estimate a firm that earns 8% on average, in this market, might sell somewhat above book value. About where Calpine’s stock sold before the recent offer. Add the value of the tax loss carry forward and, voila! A stock valuation of around $5.9 billion.

Oncor, to us has come to resemble a wealthy young heir from a broken home. Sempra is merely the latest in a stream of “relatives” offering to adopt.

Calpine, on the other hand looks like a straight up option. If there’s big uptick in U.S. electricity demand, or even the prospect of same, it pays off handsomely. If not, they can join the old boll weevil. By Leonard S. Hyman (author of the book, “Electricity Acts”) and William I. Tilles for Oilprice.com.

Billions in cost overruns. Years behind schedule. Westinghouse bankruptcy didn’t help. Read…  Nuclear’s Demise Continues: Another Huge Project Cancelled




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  69 comments for “Why Suddenly Two Mega Utility Takeovers?

  1. Lune
    Aug 26, 2017 at 9:54 pm

    If they’re betting on electric vehicles to rescue base load generating capacity they’ll be waiting a long time, and perhaps forever.

    Fundamentally electric vehicles are all about battery tech. If battery tech improved, electric vehicles will be more popular. But *so will utility-scale battery storage*. Which lowers the need for old school plants in favor of cheaper renewables.

    These guys are betting that battery tech will improve enough that electric vehicles take off, but that somehow that improved battery tech doesn’t also enable utility storage to take off in tandem.

    If battery tech doesn’t improve, demand doesn’t increase. If battery tech improves, demand increases, but so does the ability to manage it with intermittent but cheap renewables. Not a great scenario either way for owners of baseload capacity.

    (that said, never estimate the ability of former vampire squids to make enormous fraudulent profits while screwing everyone else over)

    • BTilles
      Aug 27, 2017 at 5:42 am

      Hi Lune,
      I agree with many if your comments on battery technology. Even a modest uptick in utility plant utilization rates exerts a disproprtionate effect on profitability. But longer term, natural gas as a boiler fuel and batteries are locked into a kind of economic “death race” to the bottom as battery technology gets cheaper. That’s even before we think about linking these batteries up in some localized, replica of the grid.

      • nick kelly
        Aug 27, 2017 at 6:55 am

        Nat gas is a source of power; batteries just store it. Nat gas competes with other sources of power, but not with batteries.
        Some of the newer and cheaper to build nat gas stations don’t heat water, they are the fuel for a gas turbine that turns the generator.

        • Ambrose Bierce
          Aug 27, 2017 at 10:33 am

          yeah storage and energy are not the same thing. which is more cost effective, a giant lithium ion battery or a hollow pressed steel vessel which fits under the trunk because dollar for the dollar the energy to fill either storage tank costs about the same.

        • Aug 27, 2017 at 10:52 am

          Yeah, a relatively small fuel tank … but an immensely complex and very heavy drive train consisting of an internal combustion engine; an exhaust system with manifold, tubing, catalytic converter, muffler; an intake system with filter, tubing, and hoses; a fuel system with fuel tank, fuel pump, high-pressure fuel lines, fuel injectors; a starter and a battery; a cooling system with radiator, water pump, and hoses; a gear box with a torque converter or clutch; and a million other systems and subsystems, all regulated via countless sensors and computers….

          Look under the hood of an electric car, such as a Tesla, and see what you find: instead of the above described system, there’s storage space.

          That’s the trade-off.

        • Lune
          Aug 27, 2017 at 11:07 am

          True, but nat gas does compete with solar and wind, and the latter technologies become much more cost effective with the addition of batteries (or other energy storage devices). Once a solar panel is installed, the marginal cost of each watt of power generated is basically zero. Nat gas can’t compete with zero. The only way it does compete is because solar is unpredictable. Use batteries to lessen that unpredictability, and the effective cost & utilization of solar & wind goes way up.

    • zoomev
      Aug 27, 2017 at 10:40 am

      “But electric vehicles are the game changer. …This represents an enormous additional increment of demand for electricity. But how long till it becomes a real economic factor?”

      Battery tech has already arrived. I was planning on buying a Chevy Bolt the instant it went on sale. Three people I work with bought one before me. Three people I would not have guessed would be interested. One of these people has an 80 mi daily commute and has no issues and this person went from zero hybrid/EV experience to this in one step.

      It’s simply a good car, a fun car (it’s quick) and it’s an EV. The revolution has arrived. The question is will enough people show up.

      All this EV nay saying is looking more and more pathetic either because of the damage it causing when the solution has arrived or the immense lack of awareness.

      • nick kelly
        Aug 27, 2017 at 11:51 am

        I think a couple might find a E AND a gas or hybrid a good idea.
        80 K or less is fine for daily commute etc. which is fine 90+ of time.
        However I am a single, one car guy and about once a month I drive to another city and back, sometimes on the same day for a total of 300 K. If I only have one car I require it to be able to do this or more.
        BTW; I find the same thing with cell phone, 90+% of the time I don’t need it, but then it is suddenly essential. This often coincides with above trip.

        Although I am far from being an E denier, the fact is that the only reason the existing grid and generators can handle them is because there are so few. Depending on the age of the grid, a few
        dozen being plugged in at the same time would trip off the local breaker. I believe it was a UK city where this was so.

        Although it’s been a while my city has had requests not to turn on X-Mas lights until after 7, when cooking is over.

        This grid, or distribution, capacity is completely apart from the generating capacity, which also doesn’t exist to support a LARGE SCALE switch to E cars.

        PS: before someone says that generators ARE part of the grid, ya I know in usual terms they are but to discuss a new massive LOCAL draw on it, we are going to have to distinguish between power at source and power available at points down stream. This is not usually a problem because our greed for power at home has crept up, and gradual improvements to distribution capacity have kept pace.

        • Ambrose Bierce
          Aug 27, 2017 at 1:22 pm

          Solar is fundamentally incompatible with the grid, because it is only suited to low wattage appliances. Electricity is sold by the watt, every time a motor or fan turns on your meter starts spinning. The reason there are no solar powered cars, is because they wont drive an electric motor. The first hybrids addressed this issue using conventional power to get up to speed and electric to maintain that. The only reason that solar is even considered as viable is that the Chinese give them away. In a zero interest rate economy Solar makes sense. Full disclosure I have a home solar system.

        • d
          Aug 28, 2017 at 4:47 am

          “Full disclosure I have a home solar system.”

          You dont seem to have come to the reality that, solar, wind, hydro, and gas, work as a combined system. Possibly as the US does not have or encourage combined supply grids.

          The US like to make 1 state, buy expensive energy from another state, through bandits like Enron, when the purchasing state can not meet its demands.

          The abused, privatised, “Competitive” US supply grid system, is one of the things that keeps energy costs, to the Consumer, high, in the US.

          The supply grid in the US, isn’t designed to, and dosent, work for, non Fossil/Nuclear fuel suppliers, and the Fossil/Nuclear fuel suppliers, keep it that way.

        • MrSteve
          Aug 28, 2017 at 10:01 pm

          You are spot on to highlight the ultra-expensive issue of last-mile delivery for electric power to charge batteries. The whole world is wired for household amp draw and electric cars break the grid with three cars on one block….

      • alex in san jose
        Aug 27, 2017 at 7:06 pm

        zoomev – back before the crash I had a Prius and that thing could scoot.

  2. Lenup
    Aug 26, 2017 at 10:16 pm

    “Perhaps they have a bullish economic outlook which strengthens their case for surging electricity demand.”

    Yes, global growth is increasing. The US stock rally is only pausing until the last miniscule rate hike is digested by the market.

    The rally in many foreign stocks – Look at Brazil, Peru, Argentina, even Egypt, is across the board emerging markets and is based on increased global growth stimulating demand for commodities.

    https://tradingeconomics.com/commodity/baltic

    Can’t be China anymore because the undercapacity issue that resulted in the last run-up in 2012 has turned to relative excess. So it must be native demand, with lower (but not too low) oil prices stabilizing the new expansion. Some of this money will flow back to the US stock market.

    With money cheap for the next several years (if not forever- something the gloom and doomers never think about), I see no end to the current expansion. Who’s buying all the iron if they aren’t building?

    http://www.mining.com/iron-ore-price-jumps-47-two-months/

    • milking institute
      Aug 27, 2017 at 12:43 am

      “Who is buying all the iron?” China is and has been stockpiling it for years,perhaps to insure future supplies to build more ghost cities? http://www.mysteel.net/

      • Frederick
        Aug 27, 2017 at 2:45 am

        Belt and road project will require ALOT of rebar And that’s no ghost but rather reality

      • d
        Aug 27, 2017 at 5:32 am

        The Japanese did similar pre WW II, but it wasn’t to build Ghost Cities.

        The answer to many modern questions can frequently be found.

        IN a HISTORY book.

        Although Hard commodities have also regularly been a place to hide excessive and unfairly made trade surpluses.

        • BTilles
          Aug 27, 2017 at 12:18 pm

          Hi d,
          The wiseguys of my youth in the Bronx used to refer to two tragedies: selling the second ave el to the Japanese for scrap and their returning it to us via Pearl Harbor.

        • alex in san jose
          Aug 27, 2017 at 7:09 pm

          d – you’re saying what is almost forbidden to say on here, apparently. There’s not way our Little Friends In The East would be preparing for war….

          https://www.youtube.com/watch?v=NH2P_pVze6s

        • Aug 27, 2017 at 8:16 pm

          This is not a site for speculating about past or future wars, or civil wars, or for war mongering, especially not on an article about two mergers of utilities… there are plenty of other sites for speculating on wars. But some of it slips through my fingers anyway.

      • Ambrose Bierce
        Aug 27, 2017 at 10:52 am

        it was stockpile Iron or US Treasury bonds

      • nick kelly
        Aug 27, 2017 at 12:04 pm

        Once it’s there it can serve as collateral for a number of quasi- legal schemes. This was the case with stocks of copper which were being pledged numbers of times, but in series. It was a link in a complicated ‘carry trade’ which was a financial trade masquerading as an industrial one.
        Or perhaps they ARE preparing for war and a battleship needs a lot of steel, if you are preparing for a war two wars ago.

    • Hiho
      Aug 27, 2017 at 1:05 am

      Stock markets and the real economy are disconnected. It is misleading to assert that growth is coming back because stocks rally.

      As adam smith said (that economist you supposed to cite but not to read): profits are made faster in countries going faster to ruin. The performance of stock markets is actually the reverse than that of the economy at large.

      • BTilles
        Aug 27, 2017 at 5:54 am

        The best description of the relationship between the equity market and the economy I ever heard was describing it like the images on the wall in Plato’s cave.
        Those images have some basis in reality and a considerable amount of distortion.

    • BTilles
      Aug 27, 2017 at 5:48 am

      Hi Lenup,
      Thank you for the your thoughts re the global situation. One thing here in the US though is that electricity demand seems to be increasingly de-linked from GDP growth perhaps as we become a more service oriented economy. This has not been good for wholesale power generators regardless of an interest rate environment that is beyond accomodative.

    • R2D2
      Aug 28, 2017 at 7:27 pm

      I think you should come down to earth; you are flying too high.

      Job market, for high tech in SF Bay area which is the largest tech market in the world is pathetic. This is home to the largest, and most highly valued companies in the world. If the job market here is pathetic, imagine how pathetic it is in countries such Brazil, Peru, Argentina, Egypt are.

      Another sign of the coming trouble is that real estate has started to crack in many countries.

  3. Thomas H Belstler
    Aug 26, 2017 at 11:04 pm

    I don’t think advances in battery storage will help utilities out any time soon, if ever There is a vast gulf between the KWH storage required for vehicles and the thousands of MWH of storage required for effective utility peak shaving.

    • milking institute
      Aug 27, 2017 at 12:55 am

      Perhaps we read too much into this,”electric cars” are a tiny percentage of energy consumption and will be for a long time. this is basically a trend reversal of investment capital moving out of “growth” (FANGS) and into the safety of “value” like Utilities,Food (whole foods) etc. Money has to go somewhere.

    • BTilles
      Aug 27, 2017 at 5:59 am

      Actually, if we connected all those batteries and sold the power back to the local utility at say 2pm on a hot July day–that’s how in principle a simple microgrid would work. I’ve always thought that a parking garage full of electric vehicles is actually power plant in disguise.

      • nick kelly
        Aug 27, 2017 at 12:06 pm

        I doubt the owners of cars being charged would agree.

        • BTilles
          Aug 27, 2017 at 12:31 pm

          They would if parking was free only of course for EVs because the garage owner made so much selling power back to the local utility.

        • nick kelly
          Aug 27, 2017 at 8:04 pm

          If they aren’t charged they will have to park so free parking would be better than nothing.

    • BTilles
      Aug 27, 2017 at 6:40 am

      Hi Mr Belstler,
      I don’t think peak shaving is about power plants and supply longer term. I used to. Now I think it’s about the proliferation of software–an increasing number of devices both large and small all programmed to use or not use power based purely on price.
      But I agree with your point about automotive uses of electricity vs peak shaving.

      • Grant D. Noble
        Aug 27, 2017 at 7:23 am

        Among all these smart people who read Wolf Street, nobody is talking about the elephant in the room. Trump is likely to end the electric car and wind power subsidy. He will also eliminate a lot of rules on production and distribution of fossil fuels. Power companies will have to adjust and those that don’t want to adjust will sell out to those who think they can using what could be the last gasp of ultra cheap interest rates to finance their purchases. Finally, the rest of the world is in desperate shape and looking for U.S. safe havens and so we see an all time high in the Utility indexes. Foreigners are using the relatively cheap dollar for this while the small caps show our economy is really moribund behind the phony government stats. But we still beat negative interest Europe and shaky CHINA and Japan.

        • BTilles
          Aug 27, 2017 at 12:29 pm

          I agree, there’s much a President can do via administrative fiat. But he can’t make coal or nuclear power plants more price competitive vs natural gas. Also, people building power plants have a multi-decadal horizon. A two term Presidency is “only” eight years.

        • d
          Aug 28, 2017 at 4:31 am

          Big ears did make gas and Green, more competitive.

          “But he can’t make coal or nuclear power plants more price competitive vs natural gas.” .

          Would you like to bet your life on that.

          Any energy source, from any place, can be made competitive or noncompetitive, by the administration, only takes a few pen strokes.

          Like it took 1 signature, to make it impossible, to get a tax stamp, to grow Marijuana in the US, so any cultivation of it, became illegal.

          OVERNIGHT.

        • Kevin
          Aug 27, 2017 at 9:06 pm

          “Finally, the rest of the world is in desperate shape and looking for U.S. safe havens and so we see an all time high in the Utility indexes. ”

          That’s why almost every major market in the world has been in rally mode for the last ten months?

          I suggest you look at exchanges beyond the NYSE. Global markets have been exploding upward for many months now and it has nothing to do with the Trump trade or money being printed by the Fed.

          Sorry, but things are getting better. The dollar will continue to weaken on the back of global growth, so I wouldn’t sell your US portfolio for fear of a market collapse.

          US stocks will rally to years end. (except maybe for Sears)

      • Thomas H Belstler
        Aug 27, 2017 at 11:53 pm

        No utility can ignore peaks. Peaks are what it has to build its system for and this applies whether it is a generating utility or a distribution utility or a combination of both. Time of day usage is another form of price control since the highest cost power occurs during the peak hours barring an unforeseen event such as a large generator or transmission interconnection tripping and peak times are highly predictable.

        I agree with you that, as time goes on, we will see more and more devices that can be programmed to look at either the time of day or the cost of power or both. Where I live in SC, they just installed a time of day meter at my house a few months ago. This however is for the benefit of Duke Power so it can tell when I use my electricity. I do not have access to the information the meter extracts. I think though that they are setting up to do time of day pricing.

  4. raxadian
    Aug 27, 2017 at 1:29 am

    Electricity use has doubled in just a decade or two (not everywhere but in developed countries and in third world countries it has risen a lot too.) and is said people will consume more and more electricity for the next few years at the very least. Hence power is on demand.

    For Internet you need electricity. The same for Cell phones, electric cars… you name it.

    How is the wind power thing going in Texas and other windy states?

    And electric cars are while ready to use, not yet madure enough.

    But when Venezuela crashes the US will get less oil, causing fuel prices to spike and making electric cars look more atractive. The main buyer of Venezuela’s oil is still the US and if Russia and or China take over they might not want to sell to the US so easily. China would greatly benefit of having fuel for their still growing industry and Russia loves to have as much gas and oil as possible since their power is based on that.

    • Thomas H Belstler
      Aug 28, 2017 at 12:00 am

      I once, a long time ago, did a study concerning energy usage and economic growth and found that there was an 83% correlation. I think this is even more true today than it was then. Energy, usually in the form of electricity, needs to be readily available and reasonably priced. Cheaper is better for the economy but that may present problems for the exploration and extraction folks.

    • Thunderstruck
      Aug 28, 2017 at 12:07 pm

      “How is the wind power thing going in Texas and other windy states?”

      Like gangbusters. There is a new grid crossline coming in from West Texas for CRES (Continuously Renewable Energy Sources). That is a 345 KVA distribution system that spans the upper ERCOT grid, and has continued buildout of the 138 KVA supporting distribution system.

      While not effecting the dual-unit plant where I work (we stay baseloaded 24/7), the grid does see quite a bit of changes when the wind is right and the number of units in service are higher. Of course, at night the winds at that level tend to subside, so we have to pick up the reactive loads for them and bump up voltage.

      I hope that the buyer of Oncor realizes that it is a closed system (with three minuscule exceptions) and only distributes power generated in-state.

  5. PAUL FURTADO
    Aug 27, 2017 at 2:46 am

    Rothchilds Also investing big in utilities. Rothchilds dumping the dollar and us stocks and buying the euro and Brasil. The large Rivers of liquidity will reshape future economy.

    • Frederick
      Aug 27, 2017 at 12:24 pm

      Of course they are dumping the dollar I’ve been doing the same thing buying Euros Gold and Silver for over a year now The dollar is on borrowed time as reserve currency and if anyone knows that it’s the Rothshilds
      I knew it was time to buy Euros when it was around 1.03 to the dollar and shills like Bloomberg were calling for it to go to 80 cents

      • d
        Aug 28, 2017 at 4:54 am

        I can understand you getting out of the $.

        Buying EUR??????????????

        What drugs are you taking.

        Please tell us, as they are obviously very bad for your sense of reality, so something the sane of us here, all wish to avoid.

  6. michael Engel
    Aug 27, 2017 at 3:02 am

    Big mistake !
    XLU:$TNX is high (XLU=utilities // $TNX = 10 years % of UST)
    But if you look through the gap in $TNX, created in Nov 2016 and ask
    yourself what made $TNX jump, over what hurdle, you will discover
    a line, tilting down, full of energy.
    It ‘s a powerful line, connecting to : 1994(H), 2000(H), 2006(H),
    2010(H)…pointing at negative rates.
    Into plasma
    There is so much energy on that line.
    If you stay on this line to hell, for too long, you get skin cancer.
    Therefor, $TNX have already popup over this line, building the
    muscles to jump much higher, to much higher % rates.
    When that happens next ==> XLU:$TNX will collapse.
    The investment will collapse.
    Warren Buffet, in the last decade, doesn’t know what he is doing,
    but got a lucky break !

    • TJ Martin
      Aug 27, 2017 at 8:52 am

      …. or being the wily ‘ Old Guys Rule ‘ individual that he is he played a game of financial ‘ Rope a Dope ‘ with the dope falling for it hook , line and billions

  7. TJ Martin
    Aug 27, 2017 at 8:57 am

    Ironic aint it as our power infrastructure crumbles before our very eyes -overwhelmed with excessive demand – more vulnerable than ever to overseas and terrorist hacking – with no cash or capability of mitigating any of its many ills ..

    .. yet private equity still thinks buying into them is a good idea .

    Hmm … once again .. Fantasy – 1 … Reality – 0

  8. Petunia
    Aug 27, 2017 at 9:52 am

    It looks like the rise of Enron 2.0. A mishmash of small utilities built on a financial fantasy mountain. It will probably end the same way, badly.

    I lived in PA when they deregulated their electric utilities. We all got a list of utilities we could call to buy our power from, Enron was on it. Enron’s marketing actually included a program where customers could pay more to source “green energy.” Sure! I expect we will see a comeback of that feature. I think the premium then was about 10%, but I think they can get more from morons now.

    If you go back and examine the Enron story, you will see that most of their money was made in energy trading and financial engineering. The utilities were just window dressing.

    • BTilles
      Aug 27, 2017 at 12:42 pm

      Hi Petunia,
      I think the utilities Enron owned provided a valuable sort of credit anchor permitting management to say see we also have low risk stuff like Portland General and a UK water utility. But at a more interesting level, they were a trading firm in a notoriously volatile business, whose management delivered steady 7% eps growth, quater after quarter. Until the fraud caught up with them.

  9. Ambrose Bierce
    Aug 27, 2017 at 10:48 am

    Utilities by regulatory oversight are allowed to pass on their costs to customers.
    The electric car fad should be replaced by a more practical switch to NG. Public transportation already has CNG, one of the obstacles to a public build out is the lack of retail pumping stations and infrastructure, but CNG compressors are available for home use, and you could fill you car at home using the same gas service that runs your water heater.
    that might be as practical as filling your Buck Rogers electric car. you can use the same engine technology and the same car you already have. no more CAFE standards, price swings due to refinery shutdowns. in SA they have dual use vehicles Propane and NG, propane is a crude oil product. currently NG sells at about a 50% discount per BTU to gasoline. the investment reasoning is evident, Buffet is a nuts and bolts investor. this is a practical solution.

    • raxadian
      Aug 27, 2017 at 11:17 am

      The problem is, with as little as about 25% of the cars in the US using gas there would be a problem of lacking enough gas. Gas powered cars would have been viable decades ago not nowadays when the US has to import a lot of oil and gas.

      You know you can make fuel out of sugar canes? Sure you basically need to refit the car to use it (but is a cheaper refit than using gas). But we can’t have it everywhere can we? After all if you can plant and farm fuel, petrol oil would be worthless.

      See: https://en.m.wikipedia.org/wiki/Ethanol_fuel_in_Brazil

      Yes Brazil is doing it and the US could do it too.

      People usually don’t know how much it costs to extract and refine heavy oil, even with transport costs, sugarcane ethanol is a cheaper alternative.

      And yes I know the US is doing biofuels but is not doing enough. They could have a whole state mostly using biofuel if they really wanted. Is not like the US has never done sugarcanes planting before, despite the unfortunate implications due to having using slavery.

      • BTilles
        Aug 27, 2017 at 12:51 pm

        The US interestingly is a huge importer and exporter of natural gas. But on net we import about 0.7 tcf annually, mostly from Canada via pipeline.

      • nick kelly
        Aug 27, 2017 at 3:54 pm

        US ethanol is from corn and has to be subsidized to compete.
        Apart from that some people object to food being turned into fuel.

        • Dogstar
          Aug 27, 2017 at 7:05 pm

          40 pct of our corn crop already goes to ethanol. If you live in farm country, you already know how destructive it is. Iowa groundwater is polluted with nitrates in many places , can’t let your baby drink it or baby will turn blue. Gulf hypoxia action plan has farmers in Minnesota up in arms as govt attempts to implement a 50 ft buffer on public drainage ditches and waterways. Although with the massive amount of tiling that has been installed over the last 20 years, much of the runoff simply gets dumped from a pipe directly into these drainages, bypassing the buffers. Perpetual growth has unavoidable consequences.

        • 91B20 1stCav(AUS)
          Aug 27, 2017 at 7:58 pm

          Not to mention that ethanol’s BTU’s are significantly less than gasoline’s, yielding fewer mpg and, at best, a push in vehicle efficiency, not even counting the fact it wreaks absolute HAVOC on the seals in your older vehicle’s engine…

      • alex in san jose
        Aug 27, 2017 at 7:14 pm

        raxadian – it’s been pointed out that Brazil has a tiny middle/upper class, about 10%, and the other 90% are impoverished, many slaving in the sugar can fields to provide the ethanol so the top 10% can drive.

        Not saying the oligarchy in the US isn’t determined to make the USA over in this mold…. but is this what you want, assuming you’re not a member of the oligarchy or aspiring to be one?

        • raxadian
          Aug 27, 2017 at 8:39 pm

          Actually a lot of farm work is being replaced by robots and maxhines worldwide, and I did said sugarcanes do have unfortunate implications.

          But is perfectly possible to farm sugarcane without slave labor, we just need fuel prices to skyrocket so is profitable enough. Is also a renewable resource unlike fossil fuels.

          Or maybe you think eletric cars indirectly powered by fossil fuels is the way to go? Because the electricity has to some from somewhere.

        • alex in san jose
          Aug 27, 2017 at 9:11 pm

          raxadian – what I’m saying is, sugar cane takes a lot more labor than just getting oil out of the ground. There’s a concept that’s near and dear to those who have been on “peak oil” forums for years, called EROEI or Energy Return On Energy Invested. Early in the oil age, the EROEI for petroleum was really high – the stuff often shot up out of the well on its own, the original “gusher”. Over the years, this amazing high “profit ratio” has been going down. Sugar cane, oilseeds, etc are really low compared to traditional petroleum. Thus, you can have a society driving around in sugar fueled cars, but that society will necessarily be composed of a tiny group of “haves” who get to drive cars and a huge mass of “have nots” who are out there chopping cane.

          My own solution to this problem is to bring back rail travel as much as possible because steel wheels on steel rails is incredibly efficient. We used to have a system of street cars here in the SF Bay Area, and having a car was really optional. Also, more bicycles, again, because bicycles are very efficient.

          We already see the start of this; the auto makers aren’t able to sell cars like they were, and more and more people are opting out of owning a car. Some of that is fashion but mostly it’s because they can’t afford ’em. Public transit use is growing, and bicycle sales are robust.

          The Soviet Union being more rationally run than capitalist systems, knew they had the problem of lots of people and they can’t all have cars. Car production was kept very small on purpose. They had buses and trains and so on. People were housed in large, efficient buildings and because they didn’t have the “suburban wasteland” ideal of living, the forests and parks around the buildings weren’t demolished. Hence, the average Russian could take their kids to play in the park, hunt mushrooms (a Russian passion) and pretty ordinary Joes had a “dacha” or summer cabin, they’d go to on their vacations (you’ll have to google what a “vacation” if you’re in the US) out in the countryside.

          An excellent, if sad, example of how well this system worked was, when Chernobyl blew, the citizens of the towns nearby were able to be evacuated easily and quickly because they had plenty of buses and there wasn’t the American style gridlock resulting in almost nobody getting out, shootings, violence, etc.

          If I sound like I’m saying private cars are a major problem, good. Because that’s exactly what I’m saying. It’s a classic mis-allocation of resources. A classic critique of car ownership (I forget the author right now) says that by the time you count up the time working to pay for your car, insure it, fuel is, wash it, store it, look for it, repair it, etc., and translate that into walking-time of 5MPH, you’re really only “traveling” at that same 5MPH.

          A simpler example of this is in Walden, Thoreau asks, why work a day at a job you hate to pay for a train ticket to the next town, when you can just start out in the morning and walk there, and arrive happier and healthier and not having to deal with the job you hate? (He used exact figures in his area in his time, and it did indeed translate to a day’s labor would buy you a ticket to the next large town, and a day’s walking would get you there. He has a lot of exact figuring in this book, on growing beans and so on.)

        • nick kelly
          Aug 28, 2017 at 4:11 pm

          Absolutely the first time I’ve heard Chernobyl quoted as an example of Soviet efficiency. I’m going to pass on the idea that their car industry was intended to be small and crappy, the former target is too juicy.

          Far from quickly and efficiently evacuating everyone who could and would be affected, the Soviets, in typical Soviet fashion, tried to cover up the disaster.

          Foreign countries found out about it before folks a few miles away. The first to have their suspicions aroused were the West Germans, who received a Soviet inquiry asking how to extinguish burning graphite.

          Days later with the site spewing hundreds of times the fallout from Hiroshima, Nordic countries began detecting the radiation. Finland had to ban reindeer meat.

          Thousands of children in the area were affected.
          The first responders mostly died.

          The incident itself was not exactly a tribute to Soviet technology. After the prototype was proven, it was ordered to be made much larger (10X?)
          The result was unstable at low power and on the day of the incident, the staff was experimenting to see if they could run it at low power. Suddenly it looked as though the reaction might stop completely. This would have been a major black mark for management, requiring a train load of coal to balance the grid during re-start. So over the objections of the operator, the rods were pulled way out.
          That cured the low power problem- for a fraction of a second the reactor put out 100 times its rated power. Then the roof blew off, scattering graphite all over.
          When the KGB arrived an officer went to pick up a piece. A staff member told him he shouldn’t, and later received a bottle of vodka from the officer.

  10. raxadian
    Aug 27, 2017 at 1:36 pm

    And the reason they had a 7% growth was because it was a piramid scheme to start with.

    Once the funds started to dry up it felt like a house of cards.

  11. Petunia
    Aug 27, 2017 at 2:02 pm

    Going forward it would be interesting to track the futures positions of ECP, especially as a percentage of total exposure. You may know someone who is invested in the fund. The whole thing seems like a cover for futures speculation. Manipulating the price up is easy, you throw money at it. Getting out is hard.

    • Petunia
      Aug 27, 2017 at 2:04 pm

      This was meant as reply to BTilles.

    • BTilles
      Aug 27, 2017 at 2:36 pm

      Hi Petunia,
      You could be right about a futures angle here. But it reminds me more of a story about the Intercontinental Hotel in lower Manhattan. It was initially built supposedly by Japanese investors in the heyday of Japan Inc. Supposedly they plunked
      $200 mil. into it. About three or four bankruptcies later, the thing sold for $40 mil. and was then profitable. Same thing here. Buy it cheap enough solves a lot of potential problems.

  12. TheDona
    Aug 28, 2017 at 7:41 am

    Sounds like “those in the know” are privy to information about a lot of Federal Money about to be released to upgrade the power infrastructure.

  13. JT
    Aug 28, 2017 at 8:22 am

    Electric cars will never compete with gas. First of all a Tesla 85kwh battery weighs 1200lbs it has the same energy storage as two gallons of diesel that weigh 14.8lbs. The curb weight of a Tesla S is 4500 lbs the curb weight of a Chevy Impala is 2500lbs. Do the math. Where is the weight advantage of electric vehicles? To often all we find in forums on this subject is the propaganda that allows a ponzi like Musk to keep going.

    Even a 400% improvement in battery technology will not make an electric car competitive with ICE cars. Something else to consider. With proper maintenance an Impala can last 250,000 miles. Tesla can’t possibly go that long without battery replacement.

    On top of that the cost of production of electric vehicles will never be less then ICE vehicles for a very important reason. They weigh more!!! This means more materials are required in their construction hence more cost.

    Facts trump Dreams. Unless your Elon.

    • Aug 28, 2017 at 9:06 am

      You said: “Do the math.” So first, start with correct numbers if you want to do the math:

      1. Chevy Impala curb weight isn’t 2,500 pounds, as you claim. Chevy Impala curb weight is between 3,662 and 3,867 lbs, depending on the version.

      2. Tesla S with a 85 kWh battery has an EPA range of 265 miles. So with an Impala (22-30 mpg), it would take about 9 to 12 gallons. So you claim that the 85kwh battery has the same energy storage as two gallons of diesel is just propaganda BS. Sure, diesel has a slightly higher energy density than gas, by about 20% but not by 600%, and there’s no Impala diesel in the US.

      3. Yes the battery is heavy, but the drive train is almost nothing… just a small electric motor. Open the hood of an Impala; it’s packed with heavy engine components. Open the hood on a Tesla and you see a nice storage compartment.

      I don’t have time to debunk the rest of your BS propaganda….

      • d
        Aug 28, 2017 at 9:15 am

        “I don’t have time to debunk the rest of your BS propaganda….”

  14. mean chicken
    Aug 28, 2017 at 1:36 pm

    “This represents an enormous additional increment of demand for electricity. But how long till it becomes a real economic factor?”

    Agree, it’s no longer a question of “IF” it’s a simple question of “when”, in our new normal economy.

  15. GS
    Aug 29, 2017 at 8:10 pm

    ” High ROE (great name for a ranch).” You never owed a ranch.

  16. Smitty
    Sep 6, 2017 at 4:53 pm

    Texas utilities are about to get liquidated Enron style and the TX manufacturing economy wiped out California style, and Calpine, it’s the water.

Comments are closed.