Odd Lots - The Big Problem With the Modern Electricity Grid

Episode Date: May 30, 2024

The modern electricity grid is a weird thing. The delivery of electricity is a natural monopoly, for kind of obvious reasons. Despite that, we still attempt to shoehorn market-based mechanisms into the system. Many utilities are shareholder-owned, yet heavily regulated. In many markets around the country, producers of natural gas, wind, coal, nuclear, solar and so on, compete to sell their electricity into the grid. Now that we're looking for ways to decarbonize the grid, we're running headlong into complications and perverse outcomes of what we've built. On this episode of the podcast, we speak with Matt Huber, a professor at Syracuse University, and Fred Stafford, a pseudonymous writer who talks about energy markets, grid history, and nuclear power. We talk to them about how we got the current grid, and why nuclear energy in particular is squeezed out of existing markets.See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, I feel like we have already done kind of one episode or maybe multiple, depending on how you define them. But, you know, we're understanding the incredibly complex, opaque, crucial world of how

electricity markets work in the U.S. and what's good about them and what's bad about them, we just got to do more. Here's what I've learned from multiple hours of this topic now. Let's hear your summary. It's complicated. No, it is, but that's it. And also, actually, I'll add one more thing.

It seems to be kind of the worst of multiple worlds. Like, in a sense, there's a lot of regulation, but in another sense, there's a lot of deregulation. In one sense, you have these dominant players, and I have to say a lot of this is informed by my experience. in, I guess, New York and Connecticut, where you have Con Edison and then Eversource. And so you have these big players that you have to pay a lot of money to in terms of distribution. But then if you want, you can go out to an independent energy supplier and pay them for the actual electricity that is

going through the pipes or the wires of Con Ed or an Eversource. But it never ends up making a difference, as far as I can tell, because the distribution costs are still so high. Yeah. I mean, I think the part about it that, like, why it feels like a mess intuitively is this attempt to essentially create a market on top of something that we know is a natural monopoly, right? Because obviously you're not going to have like multiple companies or ideally, or I don't think it makes sense, maybe it does, to have multiple companies like running their own wires in distribution. I think we all sort of get why there is this natural monopoly aspect. But then, of course, you try to introduce market aspects. And so different producers, whether it's

solar, whether it's nuclear, whether it's coal, whether it's natural gas, whether it's wind, etc, are kind of in a market. And it depends. So I think in Texas, there's probably different than Virginia versus Tennessee versus New York. That's the other thing. There's state-by-state differences, obviously. Texas, there's a lot of competition where you can basically just do whatever you want. And whoever is the cheapest price at any given moment, that's who is supplying the power. So you try to overlay on top of this natural monopoly, some sort of market-ish thing where different people compete. And then, of course, you have the issue of because it's not a market, these utilities are, as you mentioned, heavily regulated, constrained on what they can invest, constrained on what they can price, constrained in the connection,

they can link between their own investment and say renewables versus then capturing that with higher prices. And everyone complains. that for whatever kind of energy they make, the system isn't working well. Yeah, but I think you put it perfectly. It's like imposing market forces on a natural monopoly, and it just seems like there are some downsides to that model. I'm going to put it that way. Downsides for consumers, and then downsides in terms of maybe the transition to decarbonized energy.

And this is the key thing. We are putting, there's so much riding at stake of the power system, right? because obviously we're attempting to take the old model that was in place for decades and then replace a lot of the generation sources with zero carbon versions, whether there's solar or wind or maybe nuclear, though there's not a ton of nuclear construction. But that is one attempt. Then there's also booming demand for the first time in decades. And this is something we have talked about in the context of AI data centers.

Tracey wrote that great post recently. Just talk about how like every question on analyst calls now for these companies is basically about demand from AI. Oh, it was crazy. I looked at the transcript for Dominion's most recent earnings call, and I think there were like five or six questions asked, and four or five of them were about data centers. And Dominion's doing a bunch of interesting things, but people only want to hear about data centers at the moment. Totally. So you have two really novel things. You have the decarbonization effort, and you have the increase in load growth. I think they call it for the first time in decades. And so it's like, Are the markets that we've designed, this combination of natural monopolies with some sort of market

mechanism, do they work for all this? And I think the jury is still out, to say the minimum. I am ready to confirm my prior that this whole space is very complicated. And I don't quite get how we ended up with this particular system. So let's do it. All right. Well, I'm psyched to say that we have two perfect guests to sort of help us understand how we got here in these markets and what the flaws might be. We're going to be speaking with Matt Huber, who is a professor at Syracuse in the Department of Geography and Environment. And we're also going to be speaking with Fred Stafford. He's a pseudonymous energy writer who works in a separate industry, but he's someone who's writing I have enjoyed for a long time. I've learned a lot from. And so we're disguising his own voice

so that he can keep his professional life and his writing life separately. So Fred and Matt, thank you so much for coming on oddlaws. Thanks for having me. Thanks for having us. Happy to be here. So why don't I just start with a simple question? You two have been writing in various places. You had a piece recently in, I think, Damage magazine and Jacobin and elsewhere. Why? What is it about the nature of electricity markets that you feel like you have to write about

and explain? So I love to answer the question, why electricity? Why electricity markets? Because for me, as kind of a stem-brained person on the political left, I got excited hearing about things like nuclear power. And that seems really important and really necessary for climate issues and so on. And what I found was that in electricity, when you start looking at like, why isn't there more nuclear power? You quickly run into this fascinating domain in which central planning runs right up against all these markets and this like really interesting tension of some things are plans, some things are markets.

Why is it like that? And then what I also saw on the political left is that nobody really was talking about this. there wasn't really any clear analysis of why there wasn't more nuclear power or anything, because I think a lot of this sort of discussion was really guided by kind of environmental politics. So that's really what drove me into this as like an intellectual subject. Yeah. Also, when you look on the political left, there's tendency to kind of fetishize the kind of like small as beautiful vision of small scale, decentralized energy generation. And when you look at the scale of the climate crisis and how much we need to build and how much we need to transform that vision of decentralized energy sits well with kind of decentralized markets and price signals, but it doesn't really sit well with the need for centralized planning, for large scale building and investment and to try to deal with the kind of load growth that you both mentioned at the top.

And so the smallest beautiful vision seemed to be totally out of step with the kind of large-scale challenge we have in front of us. And trying to kind of think through how we could reform the electricity system to meet that challenge is, I think, why we got into this topic. So I'm going to ask the obvious question then, which is how did we end up with this system? Because my understanding reading some of your work is that there was a time in the early 1900s where we had very centralizing. very regulated power companies, utilities, basically. And then later on, in the century, we moved to this weird sort of pseudo-deregulated market, where we had independent operators plus the regulated utilities. How did that transition actually happen?

Like, basically, walk us through the history of the U.S. energy industry in under 20 minutes, preferably. You know, it really does go back to early 20th century. where a lot of sort of progressive lawyers and progressive political thinkers sort of realized there were these parts of the economy that were seen as sort of essential services, like water, like gas, like railroads even, that were sort of not really best left totally to the private sector and totally to the market, and that are better sort of regulated as public utilities because there's a fundamental kind of public interest in making sure

that those utilities are kind of running smoothly and offering those essential services. And pretty soon when electricity came on the scene, it became pretty clear that electricity was one of those essential services. And therefore, it came under the domain of public utility law. Now, the problem was the sector of electricity was controlled by capitalists, like people like Thomas Edison and others, and eventually like Samuel Insull, who, you know, wanted to run this system for profit. And that kind of tension kind of played out for a while, but eventually they realized that, okay, it doesn't make sense for society to have multiple competing electric distribution companies sort of laying wires against each other. So what we really need is to actually

have a single electric utility. And the industry sort of fought and compromised to make sure that that electric utility would be run by a private investor-owned utility. They'd be given a monopoly franchise over a given territory. In an exchange, they would be regulated by public utility commissions, which we still have in this country. They still regulate your distribution utilities. And they're supposed to regulate them for the public good, for the public interest, make sure these private utilities aren't like gouging consumers. And so that created a kind of compromise or utility consensus that lasted throughout much of the 20th century. And these sort of monopoly regulated utilities, you know, they built the grid.

You know, if we talk today about the return of low growth, there was a lot of load growth in the post-World War II era. And they developed this model where their investments were regulated and the prices they charged to consumers were regulated. But they were really effective at building out the grid and building that generation, transmission, distribution. Now, by the 1970s, they started to come into disfavor. There was, as many would call it, this kind of shift towards Neal

liberal ideology where really all the kind of big hulking institutions of the post-war era like government and unions and utilities were seen as kind of inflexible and not competitive and we need to kind of really smash these institutions and deregulate them and break them into smaller and competing parts. And so at that point you get this long process of trying to break up this utility system that again used to be run by a single entity and they can could use central planning. They could really invest with long-term considerations. And then you break it up. And as you both talked about in the introduction, now we kind of have competition and generation. You have all these different independent power producers that are competing to

sell electricity onto wholesale markets. And the wires, the transmission and distribution still tend to be owned by utilities, but they've also found ways to insert competition into the retail side, where consumers can have so-called choice over things. And so what they've done is kind of broken up this highly integrated and complex physical system called the grid and broken it up into parts where they can subject it to competition and markets and price signals. Now, this is where we kind of reach this impasse, where if we really want to totally restructure the grid, totally grow it in ways that can serve decarbonization and AI and all this stuff, that perhaps like maybe this sort of more integrated, more central planning, more coordinated and

socialized investment model could be more useful than this very scattered and sort of a fragmented system we have now. Women are looking for more. More to themselves, their businesses, their elected leaders, and the world are out of them. And that's why we're thrilled to introduce the Honest Talk podcast. I'm Jennifer Stewart. And I'm Catherine Clark. And in this podcast, we interview Canada's most inspiring women.

entrepreneurs, artists, athletes, politicians, and newsmakers, all at different stages of their journey. So if you're looking to connect, then we hope you'll join us. Listen to the Honest Talk podcast on IHeartRadio or wherever you listen to your podcasts. So Fred, why don't you jump in? Because as you said in the intro, you got interested in nuclear power. And in your view, the current market model is not amenable to the scale of nuclear power expansion we need. And we know that there's hardly any building. was a new reactor last year, but it's incredibly slow. What is the core flaw of putting nuclear

into the existing electricity model? So the major issue is that nuclear is this extremely capital-intensive infrastructure that costs so much, and it produces very cheap power once it's built, where the operational expenditures are very low, and it does so in a way that is just sort of constant. It's not flexibly moving, like power increasing and decreasing, It's just sort of dumping 24-7 what people call base load power out into the grid. And because someone has invested so much capital in this thing to recoup the costs, they have to run this and try to get revenues 24-7 max capacity. Unfortunately, the way that revenues are assigned and for power generators in these sort of restructured areas that are really dictated by marginal prices at any given unit of time, the price of electricity on. the market is the price of the marginal unit, which often tends to be a price of natural gas.

Sometimes it's even close to zero because there will be a lot of renewables at that particular time and place. But you kind of lose the guarantee that you can recover your costs, you being the owner of the nuclear plant. So it just makes it very hard to know you're going to recoup that investment. It means that all this wind and solar energy, which is at any given time, might be on the grid, maybe isn't, but when it is, it's bringing down the market prices. So it basically just disturbs this way that nuclear and hydroelectric power, pumped hydro storage facilities, all these big, big infrastructures were invested in in the way they recouped costs. And because the utilities had this sort of cost of service regulation where the idea

is they would invest in the infrastructure and they would get a profit on the capital investment. they'd be allowed that, you know, roughly 9-10% profit. But the total costs for everything that they had invested in and were spending to run the electricity system to provide electricity service to customers was being socialized to those customers. When you don't have that model, the revenues are less guaranteed.

The revenues are just whatever the market revenues are. And there's just various reasons why that competition from the other forms of energy and the way the prices are set according to whatever the marginal unit of power is, it just doesn't work well for these big power projects. Wait, can you give us a specific example of a utility that might be doing something or have more money

to make renewable energy investments? I'm sort of leading you on here. But one thing that you mentioned in your writing and going back to our intro is Dominion building its own ships to install wind turbines. And that was kind of stunning to me. I hadn't heard that before. So talk a little bit more about like the concrete examples of utilities, maybe doing this at a larger scale than some of the independent operators. Yeah. So I love the Dominion example. I think it's so interesting. And we do open our recent essay with that. So let's say you're a state and you're a state that has democratically determined that you want offshore when to be part of resources that the state is using. That is a result of some kind of democratic process. People might disagree with that. But that was.

a state policy aim. Now, if you're the state of New York and you want offshore wind, you say, all right, we have some power markets already, but that's not going to be enough to attract any investors in this massive, massive capital intensive project that's a long-term infrastructure. So instead, we're going to design, we the state, are going to design increasingly bespoke financial policy instruments called the offshore renewable energy certificate as a subsidy. And we're going to force all the utilities, like the coneds and your utility you're paying bills to, to have to purchase a certain number of these instruments, these certificates, so that it's kind of socializing the cost of the subsidy among electricity consumers. But now we've designed this new kind of financial

instrument. We are augmenting the existing power markets with this as a subsidy because the power markets weren't enough to attract investors. Then we're going to design a competitive auction process to take competitive bids. So we say, please, please, somebody. Oh my God, we want offshore win. Please someone come and build it. Here's the subsidy on top of the power markets. And whatever forecasted revenues you think you'll make based on your forecast of the market price, you get to keep whatever's left. Place your bids. We want to procure it. And we'll see which one offers the best price for us, the state. Now, that is the kind of deregulated or restructured market approach to this. Now let's look at Virginia, which has Dominion as an investor-owned public utility.

Virginia passes legislation, we want offshore wind. They then just task the public utility to build offshore wind. Dominion then, it doesn't need to, no one needs to design all these additional subsidies, these additional markets or auctions or anything. Now the state public utilities commission just needs to be working in tandem with Dominion Energy to kind of approve whatever investments they think are needed, determine what's prudent of those investments, what they're allowed to socialize to the customers. and they have such a scale.

It's actually the largest of all the Atlantic Coast offshore wind projects by a fairly large margin. And because of the economies of scale here, well, you mentioned the ship. One of the major kind of supply chain issues that offshore wind projects are facing is there's not enough ships because there's this law, the Jones Act from 100 years ago that says, yeah, it's a common, yeah, everyone mentions it. And everyone just acts like there's no legitimate basis for that. I'm not going to make that argument.

that's a fact regardless. So there's not a lot of ships. So Dominion just says, okay, we know we can recoup the costs of all this stuff because we're a public utility, a regulated monopoly utility. So we're just going to build a ship. And just a couple weeks ago, that ship was built and it sailed out of a port in Texas. It's called the Shribdis, like Scylla and Shribdis, you know, questionable sea monster naming for your offshore wind vessel.

But now they can keep this project going, despite what kinds of cost increases there are with supply chain issues and so on. Whereas in New York State, a lot of the contracts that were the results of these competitive processes had to be canceled because supply chain problems and other issues meant that the projects at the agreed upon contracts and subsidies were no longer profitable. And the state said, whoa, we're not going to let you renegotiate the price. We're canceling it. Rebid later. All right. So what are the people of New York left with then?

Tracy and I were just talking earlier today about how the Jones Act has probably now come up on like 20 episodes, but we've never actually done a proper Jones Act. episode. And now I think we'll just never do one, so it can be this running joke of never having done a Jonesack episode. Matt, I want to go back to you. You know, you said something that certainly rings true to me. In fact, I brought it up recently on another episode that you say the political left pushing renewables, the certain fetishization of the small is beautiful. I sort of put it as like the more bucolic forms of energy, solar and wind. But what is the problem with relying on solar or wind? Because as far as I can tell when I look at, charts and especially when you augment them with batteries, it looks like we're installing more and more and more. Why is that not the path? If we're installing more under the existing market structure, why is that not the path towards decarbonization, decarbonizing the grid? Well, it's certainly part of the path. In one sense, we were trying to figure it out, but the intermittency issue is still an issue, you know? You'll see headlines. Like once I remember the UK and the financial times it was like 66% of their energy was coming from wind one week. But if you read the whole article,

two weeks before that, two percent was coming from wind, right? And so there are challenges to what they call firming that intermency. And you can do some with lithium batteries, but those batteries can only last about four to eight hours. So there's really still a challenge of long-duration energy storage that we're still told we're sort of a couple years away from. But obviously solar and wind are going to be part of the decarbonization equation. One thing our writing has tried to point out is that because of this deregulation process and because of a very specific policy on the part of the United States to incentivize renewable energy production with tax credits, it's virtually ensured that all the solar and wind development, nearly all is being developed by

the private sector and by these independent power producers who are sort of dislodge from the old utility system. So one issue we have is that the large majority of solar and wind development, independent power producer development, are kind of just these capitalists who are separated from the kind of social good of the utility system where they kind of have to sort of, again, like the Dominion case, justify their investments to a public commission and kind of sort of try to integrate their investments into a sort of larger public infrastructure. No, they're just scattered capitalists trying to compete with each other to sell renewable energy into the grid. And as Brett Christopher's book has pointed out, you know, it's actually quite hard for these sort

of scattered renewable producers to actually make profits on these complicated wholesale markets. So we think solar and wind is going to be a crucial part of the equation. But unfortunately, the investment model for it so far has been more aligned with these quite chaotic and quite fragmented markets. And so trying to plan a whole sort of decarbonization of the whole grid would really be about trying to integrate solar and wind with nuclear and geothermal and in long-duration storage. And that, again, requires a much more central planning, much more of this kind of socialized investment model. And I would just add on to what Fred said earlier, the utilities do have a socialized model of investment, which is really what you need if you want to

grow the system rapidly. But they socialize it through the rate base, through ratepayer financing, which is actually kind of a pretty regressive form of financing because it's coming from the customer. And that's one reason why you're not going to find a lot of people who love their utility and sort of really love getting those utility bills. So we actually advocate that the most progressive way to finance this kind of investment in a socialized way would be. be more towards progressive taxation and actually, you know, taxing the rich more to actually fund this kind of essential public infrastructure that really all of society needs. And it shouldn't be that the poor are paying the same rates as the rich and that's what's financing our decarbonization

of electricity. We should have a much more progressive sort of tax approach to that investment. I'd like to jump in on this question of renewables and why not have them. I think sometimes if you advocate for big things like nuclear. You can be put in a box where you're a new bro. You hate renewables. And that might describe some people. But for us, our concern is that by restructuring the entire way that the electricity sector is organized and the way revenues are accrued and all that in finance, to in the interest of supporting renewables, that's what we think the problem really is. It's not so much the fact that they're there. It's the fact that things are being reorganized to promote them and then let's just kind of ignore the fact that it also has led to an explosion of

natural gas power everywhere because when you have these markets if you're forecasting some high wind output and then high wind output doesn't come something changes you need a really liquid market of traders and others who are ready to jump in and produce the power and sell to whoever was banking on that wind power to be there so it's like the desire to integrate them at such a huge scale is what brings the restructuring that we're saying is maybe not the wisest thing. We and women are looking for more. More to themselves, their businesses, their elected leaders, and the world are out of them. And that's why we're thrilled to introduce the Honest Talk podcast.

I'm Jennifer Stewart. And I'm Catherine Clark. And in this podcast, we interview Canada's most inspiring women. Entrepreneurs, artists, athletes, politicians, and newsmakers, all at different stages of their journey. So if you're looking to connect, then we hope you'll join us. Talk Podcasts and IHeartRadio or wherever you listen to your podcasts. Tracy, this was like a light bulb moment for me at some point because I remember at the start of my career, I remember the Pickens plan and Teaboon Pickens was like this big start

advocating all this wind and I like, I didn't really get it because I was like, I thought you were a fossil fuels guy. Why are you advocating wind? And only years later did it click that this idea of natural gas as the complement for wind and that when the wind isn't blowing, then then you're going to need Tiboon's natural gas. But this is one of those things that took me many years to understand, like, why it was him that was advocating so much wind power. Yeah, I guess in retrospect, it was obvious. Yeah, but I wasn't in that way now.

And I was reading the piece that Matt and Fred did, and I think there's an estimate in there that companies contracting for renewables, in fact, draw between 20% and 50% of their annual electricity from the regional grid, partially from fossil fuels like NAC gas that you just mentioned. So, you know, we've gone through the sort of downsides of the current model, which seems to be this weird combination of both regulation and deregulation. How would you design a system such that it moves away from where we are currently? Like, what would the ideal system to address some of these issues actually look like to you? It sounds almost like too nostalgic, but part of me wants to say we really should just return to that model of public utility law and regulation of the electricity system because, again, I think we've kind of lost touch with what it took to build a grid and build a society like we did in the 20th century.

and it was very clear that electricity was this sort of underpinning societal scale infrastructure that was sort of foundational to modernity and foundational to the thriving of all of society. And so we really thought, like, okay, for the public good, we've got to sort of plan and charge one single entity, the utility, to kind of take control of that system and plan its investments to integrate it for society. And then, of course, once the grid was built, and once all that growth, of the post-war era was starting to stagnate, people kind of became disillusioned with that model, right? But we are in a different context here in the 21st century. We have to return to growth.

And, you know, in the post-World War II era, the utilities had something. They called it the grow-and-build strategy because they knew they could actually make profits on actually growing their investments. And that was a real specific strategy. The more they invested in the grid, the more they could get profits and get their investments

sort of approved by the public utility commission. But we are back right here in 2024. We're back to a need to grow and build the grid. And some say we got to triple it or quadruple it. And to do that, we need a totally different institutional model of investment. And the public utility one, it worked. And, you know, again, I'll mention Brett Christopher's book again, you know, if the problem is that renewable energy production is not profitable

and these scattered independent power producers can't make profits. Well, one thing about the utility model is the whole system was about guaranteeing profits to the investor. It was guaranteeing a rate of return on investments that were approved again by the Public Utility Commission that has to kind of look at the utilities' books and open them up and kind of evaluate whether or not the investments make sense and whether or not the rates make sense for the consumer. And so it seems to me that was a really good model in terms of growing the system and investing in the system. And not many people, I think, are thinking today about returning to it. But I think that's because a lot of the people talking today have forgotten what it takes to build a societal scale infrastructure like we did in the middle of the 20th century.

Just to play devil's advocate on this point, how would you address the problem of regulatory or political capture in that sense? scenario because this came up in the early 20th century, which you already sort of touched on. But when I think of the electricity system in a place like Connecticut, a lot of it seems to be ever-source going to its regulator and saying, well, we need to raise rates and distribution costs because we're going to make billions of dollars worth of investment in renewable energy or in the grid or whatever. How do you avoid that particular risk? Because this seems to be what actually bothers people when it feels like there is a monopoly and they can basically raise prices as much as they want. Yeah, I would say one thing to keep in mind is that competition versus monopoly,

this isn't Amazon having a monopoly. This isn't Google having a monopoly. This is a regulated monopoly where the retail prices and the investments are happening in accordance with some kind of nominally happening in accordance with some kind of state public process with regulatory control, you might even have commissioners who are directly elected in some states and other places they're appointed by governors. But we would never say there's no such thing as regulatory capture and like corrupt dealings with the utility model. As we mentioned in our recent essay, like first energy utility in Ohio has been just embroiled in this like horrible scandal where there was like bribery with the government to support certain initiatives they wanted. I mean, that stuff does

exist. But what I would say is that generally, we need more public interest in the goings-on of the public utilities commissions, journalism around what's happening there. I mean, there's a reason on your show you're talking so much about clean energy growth and decarbonization. This is a mode of politics that is increasingly pretty prevalent, pretty significant, very high dollar volumes of investments being discussed. And I think it warrants a kind of renewed democratic focus on exactly these sorts of things. But also I would say that the opposite model, just increasing competition, doesn't mean you don't have, like,

giant market power and political dominance. The largest renewable energy developer in the country is Next Era. Next Era is this big company that has subsidiaries that are public utilities, like Florida Power and Light. There being market competition doesn't mean you don't have these giant firms that then for all the regular vanilla reasons can kind of influence politics the way they've always been able to. So it's not that like utility means that and competition means pure, beautiful price, natural price competition and so on.

And it's also that the private model itself, like we try to make clear like we think the utility model is preferable. But the ultimate, I think, problem is in the early 20th century, we did decide that we're going to hand over this crucial public infrastructure as a monopoly to private capitalists who ultimately are answerable to their shareholders and want to seek a race. return on their investment above really the public interest. And they're regulated for that reason. But ultimately, I think that was kind of at the root of a lot of our problems that we have with utilities, because they are. They do seek profits above the public interest. They do capture the public utility commissions and they are corrupt. So that's why in a lot of our writing, we really do think ultimately the ideal model for us is public ownership of this public utility, right? Why are we handing over public utilities to the private for-profit sector? Why aren't we

doing something like the Tennessee Valley Authority and like these, again, against the kind of left small, small, beautiful kind of community scale, local scale energy. We like to think about the sort of big public power examples of the Tennessee Valley Authority that, you know, is not running their utility for profit, is planning that utility area for their public mission of serving their customers and also of decarbonization. They have really decarbonized their generation to a significant degree. They're not done yet, but they're developing new nuclear, which is not happening a lot in the private market, as we've talked about. So that kind of model of public utilities where it's actual public ownership, I think that's the best way to avoid those

kind of problems you have with the corruption and the kind of graft in the private utilities. I'm glad you brought up the TVA because I wanted to sort of make sure we hit on that. I remember first learning about the TVA probably in high school when we did some, you know, section on the New Deal. And then I sort of just forgot about it. And in my mind, I only think of it in that context. But then I realized it's actually still a thing. And the entire, it looks like the entire state of Tennessee or almost get their power from the Tennessee Vality Authority. What was special about the TVA and why is it sort of like loom so large when they teach school kids about the New Deal? And how does it operate today?

what is it like is it okay here is a federally owned electric utility talk to us like is it actually delivering on the promise of what you both claim that can happen under the publicly owned model i am so glad you're asking this question as perhaps the political left's number one defender of the tv i feel uniquely positioned to answer it so as i was saying earlier like we need a mode of politics decarbonization is so important clean energy growth is really important that should be a lot of public attention on the investments and the actors involved in that. Well, back in the Great Depression, that's exactly what was going on. The kind of major corporate villains of the day were the public utilities holding companies, these massive organizations of capital into these

pyramid entities that controlled electric power utilities across the country. So when Franklin Roosevelt, FDR, was running for office first in New York State and then for president, really he kind of cast the public utilities as these major villains and as electricity as this key to modern living that everyone was entitled to and that large parts of rural America were not getting. So the TVA came out of that kind of political context. You have the Great Depression. You have a administration that was really interested in big, bold, new experiments to address crisis. And the TVA was sort of this way of adopting a model that was first sort of starting to be set up in New York State where FDR was governor beforehand and the New York Power Authority of saying, hey, here's

all this federally owned river systems where the federal government has control for navigation and other reasons like that. Let's try to develop this part of the country by focusing on controlling the devastating flooding of the river. There was a nitrates production facility, that was being built for World War I that was kind of being disused that was attached to a hydroelectric power station on a dam on the Tennessee River. And so that was a key resource

that the TVA was being built around. But ultimately, it was kind of a regional planning to develop that economy and bring modernity to an impoverished region, which was stricken with malaria at the time. And as I said, lots of devastating floods. So that was how the TVA came about. but it really was simultaneously about this kind of attack on the private utilities companies.

I mean, we say it's kind of confusing. Public utility is the notion of like a regulated utility, but they're not publicly owned necessarily. So the TVA very quickly became kind of a weapon, an aggressive attack on the utilities to try to deliver cheaper power for electoral reasons, but also just to help develop the economy and bring more power to people there. Bonneville Power Administration in the Pacific Northwest was built up for the exact same reason, the exact same model. FDR had a dream of having four different areas of the U.S. would have

such systems. But it really was like this fascinating time where it was kind of build up this deeply technical, institutionally complicated, technically complicated system, like within the state have bureaucrats and kind of wonks like figure this out and build this and put people to work doing it. And the fact that it survives today in a kind of different form, today, it's really more of just a, I mean, it's not just a, but it is, I like to think of it as it's America's major state-owned enterprise as a power company, but it still does have some kind of regional environmental stewardship goals that it has to satisfy and it has to look after the river systems and so on. But yeah, it's really from New Deal experiment and regional development, bringing modernity to the

masses. Fast forward to now state-owned enterprise that is a political instrument in some sense. Their slogan was electricity for all. It sort of sounds like a Bernie Sanders slogan. And it was because the private capitalist utilities didn't see it as profitable to serve everyone, right? And it's that commitment to this electricity system is this essential public service and that everyone should be able to have it. And again, just to go back to today, I mean, there's all this realization that we need a lot of growth in electricity, but there's also some data centers and AI producers who sort of think, like, well, maybe we can just build like a big micro-nuclear reactor for our own data server, like, and sort of delink from the grid entirely, right?

And I think that kind of notion that we can just sort of hunker down and produce our own electricity isolated from the system is a real danger in that TVA model of like, really, we need to build a system that is for everyone, something we need to bring. back. Fred and Matt, thank you so much for coming on Odd Lodz. I believe I am marginally closer to understanding a bit about how the grid works and how he got here. So really appreciate you both coming on. Thanks so much. Yeah, thanks a lot. Tracy, I really enjoyed that conversation. I think to start, the simple thing between this and the Brett Christopher's episode we did, is that the uncertainty, the lack of offtake, et cetera, it clearly seems like a real issue. We know we need

the power. We know we want power from decarbonized sources, yet at least as of now, the market systems don't quite seem to satisfy all things at once. Right. I think Brett described it as that sort of toxic mix of a huge outlay, a very big investment for generally a low expected return with a dash of volatility and uncertainty over what electricity prices will actually be. And so the model just doesn't work for financing a lot of these things. It's really interesting, too, because when we talk to Brad, obviously, it was in the context of the constraints on ongoing renewables growth, but that makes a ton of sense to me with nuclear, right?

If the entire thing is like the assumption is that once you turn on the plant and it's constructed, it's supposed to run forever, or decades and decades. But if you have periods where the sun is very shiny for a long time, or there is a tremendous amount of wind, and they're literally getting zero revenue during the, those periods. You could see why, you know, people talk about the environment and we forgot how to do this and maybe there's some thing, but maybe it simply does not pencil out to make such a gigantic upfront commitment. Yeah. Well, I think the other thing it sort of touches on is I do think,

you know, I can't remember if it was Matt or Fred who was talking about like the need for more of a democratic focus on this particular issue. But I do think it kind of touches on, I guess, an innate sense that a lot of electricity consumers, i.e. almost everyone in America, actually has at this point in time, which is going back to this idea of sort of the worst of both worlds, where you have like these big utilities who are charging, you know, a lot for distribution. And then you have the independent power generators who maybe are more competitive in their pricing. And then you have the financialization of energy markets combined. And it doesn't seem to be, and I think there were some stats in the research, but it doesn't seem to have actually brought down electricity costs that

much. And then secondly, it doesn't seem to have delivered on the transition to renewables or decarbonized energy at scale, at the scale needed. Well, I thought it was interesting because just now you said electricity consumers, which of course we are, but the industry doesn't even consider as consumers. They call as rate payers, which I think is a very telling thing that the consumers of electricity, unlike in every other market, are not considered consumers. We're considered rate payers. And I think it speaks to exactly your point that there's this sort of pretense of a market system for energy. But at the end of the day, we're not like, say, consumers of cars or soda or sneakers were rate payers of electricity. Yeah, we are beholden to the power of electricity. Oh, power

of electricity. There we go. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our guests. Fred Stafford. He's at Fred Stafford, DCS. And Matt Huber at Matt Huber, 78. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashel Bennett at Dashbot and Kel Brooks. Thank you to our producer, Moses, on Dom. And for more Oddlots content, go to Bloomberg.com slash Oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in the Discord with fellow listeners. Go to Discord.g.g. slash oddlots. And if you enjoy Oddlots, if you like it when we do

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