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WIFIA was approved:

https://www.epa.gov/wifia

Good news for water funding, but still a drop in the bucket of what is needed

 

Power utilities are not really interested in coal regardless what Congress and the President do to encourage it.

https://www.pressreader.com/usa/orlando-sentinel/20170208/281784218834781

Are we surprised?  Coal is dirty and creates obvious problems.  Coal emissions caused English kings to ban coal in London 400+ years ago.  Coal jobs are not coming back.  Nor are manufacturing jobs.  It has nothing to do with China – everything to do with technology (robots).

Broward College is seeking $29 million for classroom upgrades because there are not enough seats in the classrooms.  The rooms are cramped and the “old seal with a  wooden table on top isn’t big enough to accommodate students today.”  It doesn’t take much to read between those lines.  About like Texas making manholes 28 inches in diameter because the guys cant fit into the smaller ones anymore….

But Beijing is sinking:

http://www.independent.co.uk/news/world/asia/beijing-is-sinking-into-the-ground-says-report-a7114201.html

Not sure how that correlates, but interesting….

 

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Water and wastewater utilities spend a lot of time dealing with current issues =- putting out “fires.”  But there are larger trends that will affect the industry.  Here are a couple recent topics that we should consider in our industry:

Will robots be doing all our repetitive jobs?  If so what does that mean for all the people doing those jobs now.  Most do not require a lot of skills, and many of those in the jobs that will be lost, do not have the skills for other jobs?  Does the $15 per hour minimum wage accelerate this transition?  How does this affect the water industry?  Meter readers might be replaced with AMR systems.  Customer service is already migrating to direct banking.  There is a change coming.

What does the driverless car mean for us?  I am thinking about an old Arnold Schwartzenegger movie.  For utilities the issue may be how we interact with unmanned vehicles, especially when what we do can be disruptive to traffic.  What happens if those cars get into an accident?  And Warren Buffett is thinking about the impact of this on the insurance industry.  He owns a lot of GEICO stock.  It is doubtful many utility vehicles will be unmanned, in the near-term, but do our manned vehicles and the potential disruption leave us open to greater risk of loss?

Speaking of Warren Buffett says the economy is far better than certain candidates suggest.  I tend to trust Mr. Buffett.  He’s been doing this a long time and has been fabulously successful.  But he notes structural changes to the economy like those noted above, are ongoing.  That will create conflict for certain professions that migrate to automation, much as manufacturing did in the 1970s.  He raises concern about what happens to those workers and suggests that we have not planned enough for those workers who get displaced as the economy undergoes continuing transitions.  In the late 1970s we had CETA and other jobs training programs as we moved from manufacturing to other jobs.  He does not see that in place now.  The at-risk – the poor, minorities, the less educated, rural citizens…. in other words, the usual groups will be hit harder than the rest of the population.  I don’t hear that discussion on the campaign trail but utilities may want to follow these trends is the hope that we can acquire some of the skillsets that we need.  Or provide that training.

Florida’s flood protection plan received a C- from a study called States at Risk.  It said Florida lacks a long term plan for rising seas, despite being vulnerable.  On an unrelated note, the state is expecting insurance premiums to increase 25% or more for flood insurance for homeowners.  And local officials are working busily on FEMA maps to exclude as many properties as possible from flood insurance requirements.  Maybe those things are all related, just at opposite purposes, but who is going to get the calls when flooding occurs?  Storm water utilities, and sewer systems where the manholes are opened to “facilitate drainage.”  The question is what the ratings are for other states as Florida was not the least prepared nor is it the only state with exposure.

A final current trend to think about is this:  Current sea level rise projections have increase the high end, but remained steady for the 50 percentile case.  By 2200 we may see seas at 10 ft higher. That would be a major problem for south Florida.  But the world population will be over 15 billion, which exceeds the carrying capacity of agriculture (at present projections and techniques).  It also places over half the world in water limited areas.  So sea level rise is going to be huge in south Florida, but will concern be localized because of more pressing issues?   Is the number of people going to be our biggest issue in 2200?  Note both will be critical for a large portion of those 15 billion people, but the solution to either is…..?

 


Interesting that while we all love low gas prices and the low cost of energy is fueling an expansion of our economy, including the first gains in middle income salaries since 2008, the states reliant on oil and gas may be facing real problems financially.  A year ago I read an article that noted the reluctance of North Dakota residents and politicians to invest in roads and other infrastructure despite the influx of oil money.  Keep taxes low was the mantra.  SO they did.  A recent Governing magazine article notes that a dollar drop in oil means $7.5 million decrease in revenues for the State of New Mexico.  Since oil has lost about $30 a barrel in the past year – that is $200 million loss.  Louisiana sees a $12 million cost/dollar drop so they have $171 billion less to work with.  Alaska, perhaps the most oil dependent budget (90 percent) has a $3.4 billion shortfall, but $14.7 billion in revenues.  Texas, North Dakota, Oklahoma and Kansas are other states facing losses.  Fast growing states like North Dakota and Wyoming now have hard decisions to make.  Growth in Texas, Oklahoma, Louisiana and Arkansas may be cut by 2/3 of prior estimates as a result.  A double hit on anticipated revenues.

The comparison is interesting financial straights experienced by the “property value” states like Florida, Nevada and Arizona before and after the economic collapse in 2008.  Florida politicians couldn’t wait to cut taxes and slow spending during boom years, then got caught badly after the 2008 recession when property values dropped in half and state sales tax revenues (tourism) dropped steeply.  They ran out of reserves and refused to raise taxes (after cutting them), so cut things like education and health care to balance the budget.  Not sure how either helped low and middle class Floridians get back on track since Florida has primarily create low wage jobs since that time, not high paying jobs.  We are paying the price still.  I am guessing Nevada and Arizona are similar.

We clearly have not learned the lessons of the many mill towns in the south or the rust belt cities of the Midwest that encountered difficulties when those economies collapsed. Everyone refused to believe the good times would end.  Now Detroit is half of its former self and Akron has the same population as it did on 1910.

The moral of the story is that booms great, but short term.  Diversity in the economy is a key.  Florida will continue to be subject to economic downturns more severe than other states when it relies primarily on tourism and retirees to fuel the economy.  Detroit relied on automobiles, Akron rubber and chemicals, Cleveland steel, etc.  Some day the Silicon Valley will suffer when the next generation of technology occurs that makes the current works obsolete.  It is what happens when you are a “one economy” town.  It is also what happens when you believe the booms are “normal” and fail to financially plan by putting money aside during the boom to soften the subsequent period.

An argument could be made that if the federal government had not enacted tax cuts in 2000 when the budget was finally balanced and surpluses were presumed to loom ahead, we could have banked that money (or bought down our debts), and the amount of borrowing would have been less in 2008.  Buying down debt when times are good is good business.  So is putting money in reserve.  The question is why the politicians do not understand it.  We can run government like a business financially, but takes leadership to do it.  It takes leadership to explain why reserves are good and tax cuts are a future problem.  It takes leadership to make hard decisions like raising taxes, spending more on infrastructure, requiring people to move out of flood plains, not rebuilding in vulnerable areas, and curtaining water use policies when they damage society.  Leadership is making decisions that help the needs of the many, versus the needs of the few.  Oh wait, I see the issue now.  We need Spock to lead us…

 


Power costs are stable.  Gas prices decreased markedly in 2014 Oil futures are low compared to 2013 and earlier.  .  Production is constant.  Low energy likely is fueling an economic expansion.  Gas economy in vehicles is at an all-time high.  Fuel efficiency lowers GHGs and cuts oil imports.  America is less reliant on foreign oil.  We have more money in our pockets.  Utility power costs and vehicle costs are lower.  Generator operations are lower.  Life is great.  Or is it?

 

Well, that depends on who you talk to.  Politicians in states with in oil and gas based economies are scrambling to deal with large deficits in their budgets.  The railroads are not happy over the Keystone pipeline vote.  Green energy manufacturer are unhappy.  Environmentalists are unhappy.    Heck even the Koch brothers are probably not completely happy

 

The first issue is methane gas.  Pipelines and fracking operations lose about 6% of the gas. A Washington Post article estimates 8 million metric tons of methane is lost each year.  That is where we are trying to capture and transport it.  The Bakken fields lack pipelines for gas, so much if it may be flared.  The amount of fracking will continue (Florida Power and Light has said it will get into the business – but outside of Florida), so more exploration will likely lead to more methane escaping.  Why do we care?  Methane is 22 to 80 times the greenhouse gas that carbon dioxide it (depending on who you talk to).  It accounts for 9% of GHG emission in the US – a third of that from the oil and gas industry.  That gas is concentrated in the western US which makes them ripe for regulation.

 

Enter cap and trade.  The cap and trade “industry” has been opposed by the oil and gas industry for years.  However there are a number of groups –from Indian tribes to NextEra Energy are posed to benefit from cap and trade (C&T) rules.   They have reduced their carbon footprint enough that they can sell carbon credits.  It is doubtful that this Congress with pass C&T legislation, but much of the regulatory focus could be shifted if C&T was in place.  C&T could accelerate green energy efforts.

 

Green energy folks want continued subsides or policies that encourage increased green power supplies, improve technology and reduce prices – all at the same time.  Rolling out a major change in the energy picture is a huge investment that will not gain traction without policies to encourage it   At least for now, green energy creates more jobs per KW-hr than conventional oil and gas, primarily in research and development and product manufacturing.  Sewing up the patents would portend positively for America in the 21st century, much as sewing up the car, gas engine, and nuclear patents did for the 20th century.  He who owns the technology should benefit.  Unfortunately that isn’t the Koch brothers who are unhappy with green energy but are happy that lower oil prices might decrease the competition in the future when oil prices inevitably rise.  But America would be better off in a non-oil based economy in 50 years if we developed an energy policy to address these issues with a long-term view.

 

However, that would take a lot of business and political leadership to overcome some of those who do not want change.  These are people who have more money than the Concord coach makers who could not fight the technology change to automobiles in the early 20th century.  It also takes a vision of what America should look like in 50 years. We might be short on those visionaries.  And how will utilities be a part of it.


So what does this mean for water and sewer utilities. First, we’d love to stay out of the fray. Water and sewer utilities recognize that they are the “peak” power supply for electric utilities. The means to expand power supplies is made difficult by the rules for capital recovery for power utilities that penalizes peak and redundant power supply construction. It must be used and useful to qualify for a return. Hence NextEra builds inexpensive, small increment renewable wind systems to be made whole and encourages residents to reduce demands so they do not need to build more large scale capacity. That works as long as access to renewables or increases in efficiency are available. The use of federal subsidies encourages the used of new technology but without the subsidies, expect the construction to slow.

The European Union is looking to phase out renewable power subsidies by 2017, which may have fairly significant consequences for the European renewable market. The Koch brothers and the Tea Party operatives they fund through many organizations like the Institute for Energy Research, Americans for Prosperity and the Heritage Foundation, are fighting federal tax credits for wind, while backing tax credits for oil and gas. Why do the Koch brothers keep showing up? Because as we noted in a prior blog – they stand to lose profits if the US depends less on oil and gas IT si a problem with big money interests using that money for self preservation as opposed to progression of technology and ideas.

Think what would have happened 100 years ago if big money was allowed to control progress. And I have just the perfect scenario pitting two sides of my family. My mother’s great uncle made Concord coaches. As long as horse drawn carriages and coaches were the primary transportation options, they made money. OF course many cities and towns found that they spend much of their tax money cleaning up after the horses, one of the all-time yuckiest jobs. Tons of horse poop was cleaned up nightly on the streets on many cities. Images are available on line. Of course there was also the stench, disease, vectors, etc associated with all that poop.

Then came Henry Ford. My Dad’s side of the family were Detroiters. They got jobs in the Ford factories, and made money from services to autoworkers as well. The cities loved having cars – less poop. In fact Henry’s cars worked so well, that very quickly cities didn’t have to pick up poop. And the stench and disease decreased. Of course back then, my mothers’ family did not have the same means to buy influence to prevent Henry Ford from producing cars. My uncle went broke, but America and my father’s family in Detroit, benefitted greatly as a result of the new technology. I think we all benefitted from the automobile. Thankfully the coachmakers didn’t have money.

Using politics and influence to resist new technology seems unAmerican. Using subsidies to encourage is seems far more beneficial to society as long as those subsidies actually benefit society. Subsidies have long been a means for governments to alter consumer and corporate behavior and encourage new technologies. Subsidies for recycling steel, aluminum, glass, paper and other materials remained in place until the technology was cost effective to compete with new materials. Now recovered steel is cheaper than new steel materials. The subsidies had their effect. The same is true with aluminum and glass. Subsidies in the form of grants encouraged water and sewer utilities to upgrade treatment and install pipes to serve new customers. Now those are low interest loans because most of the cost effective connections have been made. It benefitted society.

Subsides have been used for years in the US and Europe to encourage renewable power use. The result is a reduction in renewable costs as more people invested in the technology. Greater supply means lower costs (economy of scale, and, theory of economic supply and demand), and subsides are designed to reduce purchase prices sooner than the market might otherwise. Otherwise most of these industries never get off the ground because they cannot get to cost effective production levels. Stay tuned.


Water limitations are a problem in many areas of the US and the world. Without water, the efficiency of power plants diminishes as the folks in Washington and California have found out when converting to air cooling their facilities. Losses can be 30% of output which makes that investment in upgrading to 40% efficiency, drop back to 30. Not a good investment, unless you have no option. In water limited places in the world, cooling water will limit the ability to use water-intensive coal, nuclear and oil facilities.

Nuclear power has been argued as a green option, but it is green only with respect to carbon production. Nuclear needs copious amount of water to cool the reactor. An while it remains an ongoing option, many are wary after the Japanese experience. There are 6 licenses in the US for nuclear facilities that expire by 2020, and 27 more by 2030. That means over a third of facilities are at their useful life. Creating second generation nuclear plants is a major, challenge at a financial and political level. For the most part China, Russia and India are leading the way with the US a distant 5th in proposed next generation reactors. We just don’t see a lot of nuclear reactors on the US horizon. Why? Renewable and gas.

The power generation picture has changed significantly in 10 years with respect to large increases in wind and gas. Renewables have increased from 2.4 to 6.5% of the market in 10 years (to 266 TWh). Wind has been the largest growth area (to 167 TWh) despite ongoing environmental issues associated with migratory birds, minimum wind speeds, and lobbying against wind projects (like Bill Koch did in Cape Cod) or the tax incentives used for renewables (like the Koch brothers continue to do along with Tea Party members in Texas). Wind energy costs have dropped by 40% in 10 years and today the majority of wind energy components are built in the US as opposed to overseas. The subsidies have made this possible by limited private capital risk. Nolan County, Texas alone produced more wind than the state of California, despite the ongoing lobbying against it in Texas. Texas has the largest “wind” reserves in the US and many in the public see the need to take advantage of the high wind areas like Texas ($25 billion to date, $13 billion proposed), the Rocky Mountains and coastal areas that do not conflict with migratory birds routes, landscape views or property rights issues. The Blackfeet Nation in Montana has long known that wind is a valuable resource on the reservation. Overall the state of Montana has the second largest wind potential behind Texas. But like Texas there is conflict – in Montana from the fracking industry. Note that the upper Rocky Mountains is where NextEra installs many of its wind fields. California has also gotten into the wind market with projects proposed in the Mojave Desert, although eagle conflicts impact those permits. However, uncertainty about the ongoing tax break , caused by inaction in the House, caused new wind projects to drop 92%, with a loss of 30,000 jobs in one year which creates questions about wind power expansion in the near future.

At the smaller level, combined heat and power (CHP) generation is located at 4200 commercial and industrial facilities today. States are interested. The demand is expected to rise to 40 GW by 2020. Solar markets are often local. Some communities provide incentives for residents to put panels on the roofs. Germany did this and now 25% of their power comes from these solar projects. 2% of houses in Arizona have solar on their roofs. In Hawaii, solar power is half the cost of generated power. However local solar has run into the same issue as wind power – this time the Koch brothers-funded American Legislative Exchange Council has encouraged local power utilities in 21 states to challenge laws that permit solar installations of houses as reducing profitability of power investments by those utilities. Others, like FPL still fund such installations creating and interesting conflict in the market.

Gas has replaced coal as the dominant source, both because of less greenhouse gases and because of much higher efficiency in source-power ratios. California, Texas, Florida and New York, among the four largest power demanding states, have seen natural gas use increase significantly in the past 20 years, virtually all at the expense of coal. Fracking has been the primary reason for the expansion of gas. High quality gas can be recovered from areas through horizontal drilling, but only 3-5% of the gas in the foundation is actually removed from the initial frack. Then the returns diminish to about 10-15% of initial withdrawal within 1-3 years, and refracking must occur to increase production. 100% of the gas is unlikely to ever be achievable. Still gas reserves are likely to be producers for some time, although industry experts expect the peak of current fracking technology in 2025, much sooner than some would hope. Despite there being over 2.4 million miles of gas pipelines in the US, the biggest issue with frack gas is pipeline absence in the big fields in Pennsylvania, Ohio and North Dakota. Refineries are starting to crop up in the Midwest and Pennsylvania to address the gas needs – which may reduce the need for longer pipelines and reduce loss (currently 6%).

Fracking is also a boon to the oil industry and the ability to recovery oil from tar sands in Alberta has increased the potential supply. Like gas, the problem is pipelines, but the lack of pipelines is a boon to the railroad industry, particularly in the Bakken Fields in North Dakota where abundant rail is available via BNSF (hence Warren Buffett bought it). Tank car demands are up to meet the 400,000 tank car loads of crude oil transported in 2013. Demands are expected to climb as new generation tank cars are built to minimize risks of hauling crude oil and coal tar sand products. Tight oil recovery is expected to rise through 2019, while a slow decrease is expected thereafter based on current technology. But note the lack of pipelines create a problem in getting the gas from North Dakota to useful markets. It is estimated that $1 billion per year in gas is flared in the Bakken fields alone. Pipelines and rail are needed, but both are controversial

The pipeline solution is varied and many. North American Oil and Gas Pipelines magazine sees a high investment in pipelines by 2020, with decreasing investments through 2035 as gas recovery drops. XL pipeline has dominated smaller pipeline projects designed to bring tar sands oil to refineries in Texas and Louisiana, but there are other spurs and different pipes are planned for different purposes. The obstacles are many – political, environmental, economic through a host of forces that either benefit directly from the pipelines or that benefit from not having the pipelines (think railroads). Of course a couple of recent rail accidents have created more controversy there, but rail is the current solution for many of these remote fields.

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