chris.uhlik wrote:I have a theory about how regulated utilities work which explains the decision to close San Onofre aka SONGS.
Remember that essentially every time the cost of electricity goes up, the utilities are making more money. You can follow the money here. Closing SONGS is going to require making extensive capital investments to replace the lost capacity. Utilities make money by deploying capital assets. The CPUC guarantees an (extraordinary in these financial times) income of about 11% on capital asset deployments. The trick is to get the CPUC to agree that a particular investment is sensible/required. What better way to make new investments required than to be suffering a shortage of generation capacity? And, what better way to deploy even more assets than to deploy things that are intermittent and require backup assets to cover the times when they aren't working? You get to deploy twice as many new assets (on which you make 11% ROI) than the ones you closed down. Superb financial strategy!
When offered the question, "How much money would you like to invest at a guaranteed return of 11%/yr?" the answer is, "As much as you'll allow me, thank-you very much!"
Utilities are obligated to get their customers to reduce consumption of their product. In such an environment, how do you grow your business? Answer: increase prices. It turns out that utility executives and economic analysts are smarter than politicians and regulators. Look who has the larger financial incentive and can hire the most creative people.
The general insight is right, but SDG&E/SoCalEd would benefit most from continued operation of SONGS, excluding extreme repairs. They're losing a lot more through lost capacity than they'll gain through higher rates.
SoCalEdison's capacity in the area excluding SONGS:
HYDRO - 847 MW (fixed)
OIL/GAS - 180 MW (flexible)
SOLAR - 13 MW (unreliable)
OIL/GAS - 562 MW
Here are the real winners...
BEAR ENERGY (a unit of JP Morgan Chase, formerly Bear Sterns):
OIL/GAS - 3,313 MW
RELIANT ENERGY (now CenterPoint Energy Inc):
OIL/GAS - 3,119 MW
OIL/GAS - 1,895 MW
data from: http://energyalmanac.ca.gov/powerplants ... lants.xlsx
Eventually natural gas prices will rise, most likely once LNG export terminals are complete and we can sell at global prices. Maybe sooner if NG fracking wells decrease in price-productivity, but I wouldn't count on it. It probably makes more sense to build nuclear in Arizona or Nevada than anywhere else now, where they can sell to California at premium rates but enjoy a more favorable regulatory environment.