Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Britain and Electricity – Asking the Wrong Questions

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Recently I wrote about Britain and electricity and the fact that Britain isn’t bringing new capacity on line in time to stave off a looming crisis as older plants go out of service and electricity demand rises.

This article, titled “Questioning the invisible hand“, has the sub title “Can liberalized energy markets cut carbon emissions? Britain is starting to doubt it”.

The first myth is that Britain, like America, really “deregulated” or “liberalized” their markets. A better description would be that the markets are “regulated differently”.

In the old markets, utilities had a duty to plan for customer demand growth and re-invest in future capacity. Many of the deregulation schemes split off generation, transmission, and local energy distribution into separate companies, which is fine in theory because then each of these three components could be optimized. In many cases local citizens were given a “choice” of electricity providers at the distribution level, but these distribution companies still essentially utilized “legacy” transmission and generation assets.

The reason that these schemes were only partially deregulated is that 1) barriers in the market place ensured that it was difficult to build base load capacity of coal or nuclear power, meaning that the older units ruled the market 2) the spot price of generation was determined by gas fired units, which essentially meant that it fluctuated with the price of natural gas 3) building transmission is so onerous (getting permits, siting it) and funding is so uncertain that the grid was not significantly improved. What did happen is that price controls on generation were lifted and rates were capped, so for a decade or so there weren’t increases in the price of electricity from the generation side.

From the article:

The committee’s diagnosis was stark: the market, left to its own devices, is failing to deliver (carbon reductions). Consumers are not buying energy-efficient appliances or insulating their houses… and power makers still prefer fossil fuels to greener alternatives.

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China in Africa

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I don’t know if it is true or not but I was told once that the writers at “The Onion” start with the headline and then write the story. If that is true, this is an example of an absolutely perfect headline that summarizes China’s role in Africa today:

Don’t Worry About Killing People


This article from The Economist describes how a large Chinese company is signing an agreement with Guinea’s dictator, a man who brutally put down a rally and killed at least 150 protesters who were calling for an end to military rule. While this type of activity horrifies the West (Guinea is a former French colony and they made strong condemnation of this activity), it doesn’t bother the Chinese in the least, who seem to be willing to cut a deal with anyone to obtain raw materials and resources.

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Recession and Recovery

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One of the broad assumptions behind recessions and recoveries is that during the “boom”, excess capacity is built into the system as manufacturers & service providers expand to meet increasing needs (today, and in the future). During the recession, manufacturers & service providers pare back, leaving capacity idle.

Part of the reason that the recovery (typically) gains steam is that bringing back this idle capacity (both in physical and human capital) is cheaper than building (or training) new, and it allows the economy to “roar” back into high gear. In some high level sense WW2 leveraged all of the physical and human capital that was idled by the great depression; while huge plants were built and millions of workers mobilized much of the initial lift was caused by leveraging what we had that was unused at the time.

When I look at this “boom” and recession, however, from the point of view of the USA, it doesn’t seem that we over-invested in productive capacity. Much of the investment was in residential real estate and commercial real estate for distribution, retail and services.

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Lame Newspaper Justification at Chicago Sun-Times

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Traditional newspapers are under intense pressure from a financial perspective. Newspapers provide much of the material that is linked to on blogs and other websites but they make little money for providing this service, while Google (owner of Blogger, which runs many sites on the internet) is a financial and stock market titan.

In addition to the financial threat, newspapers have a more “existential” crisis as they attempt to justify their role in the new world. They are often “scooped” by blogs and other media, which feature focused, partisan and expert writers on specific topics, as opposed to the “generalist” model used by traditional journalists.

In Chicago the Sun-Times has been rescued from bankruptcy by Jim Tyree of Mesirow Financial, who paid $5M and assumed $20M in debt for an enterprise with $200M of revenue / year. This rescue was accompanied by significant work rule changes from the unions that run the Sun Times, which are supposed to enable Tyree to restructure the enterprise to become profitable.

With all of this drama, the Chicago Sun-Times had an excellent opportunity to re-establish their voice and champion their role as journalists and their importance to the city. Let’s hear what they had to say in an column by Neil Steinberg titled “Hard choice lets city keep 2 newspapers“…

If the Trump Tower toppled into Wabash Avenue this afternoon because its builder secretly mixed Cream of Wheat in with the concrete, the Chicago Sun-Times… would instantly rush people over… to talk to people stumbling out of the twisted wreckage. More important, it would set reporters to work, figuring out just how that Cream of Wheat got into the cement, and what we could learn from the fiasco.

The question that the Sun-Times needs to answer is WHAT would be missed if they were to exit the scene, and HOW that would impact the citizenry of the City of Chicago and the other cities that they serve.

This completely feeble example is so far off base that I don’t even know where to begin. The most important value of journalism is to get AHEAD of stories before they become disasters, so that the disaster is averted. This means that they learn about an industry or topic, watch what is occurring, and raise the alert to the public before the event significantly impacts the population.

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Stimulus Money

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This is where the stimulus money actually is being spent… on new curbs and sidewalks here in Chicago. In the modern version of “ditch digging” these are the transformational projects that seem to have been chosen. On virtually every street in my neighborhood they are breaking up the sidewalks and installing ramps or fixing curbs in the corner. And I was told that they were going to use these funds to fix the US transmission grid for electricity, but apparently that’s “too hard”.

Note also the mandatory “Green” label on the side of the cement mixer. Right…

Cross posted at LITGM