Exploiters versus experts

by Planning Engineer (Russell Schussler)

The unfolding saga around FTX, the cryptocurrency exchange currently in bankruptcy, appears to share some similarities with factors which led to the demise of Enron. Enron and FTX both initially achieved success because they were able to exploit some of the inefficiencies present in a complex system.

While it is a great thing to identify and correct inefficiency, the abilities of those who do so may be greatly overestimated at times.  As with Enron, it may have taken a special brilliance for Sam Bankman-Fried to capitalize on some shortcomings in crypto markets. But is the influence he received, the many speaking engagements and the adoring press commensurate with accomplishments and abilities?

You don’t have to be an overall expert in regards to a complex system in order to discover and tinker with particular inefficiencies and shortcomings within that system. In fact, successful exploiters may be grossly ignorant or worse, misinformed about major factors of the complex system. The ability to exploit a system does not mean that the exploiter is capable of redesigning the system, building a system ground up or even maintaining their edge. This post examines the initial success and ultimate failure of Enron’s attempt to transform the energy market before concluding with some thoughts around exploiters and experts.

Before Enron

In the period prior to the emergence of Enron and other power marketers, utilities operated in a more isolated fashion when developing, operating and scheduling their power supply. While there were power sales between utilities which might be triggered by supply and demand imbalances, the concept of short-term sales of energy based on incremental cost differentials was not even on the radar of many within the power industry.

Transmission lines put in to make the system more stable and enable long term sales allowed for such exchanges. However, the mindset of the industry was not there. A common thought was that any energy sales should at least capture incremental as well as the fixed costs of those resources. While economists and utility personnel today can easily see the flaw in such thinking, it was not the case in the 90s. I remember my Vice President in the 1990’s saying, “Why should I sell the output of my plant to my neighbor for less than it costs me?”  Now he clearly was an expert on the functioning and economics of the overall power system, but there was a blind spot there. It often took a while and a lot of effort for the argument that “we will best reduce costs when we use every opportunity, we have to make a nickel”, made sense to such experts.

The Power Marketers Emerge

While utilities were very good at economically dispatching their own resources, they were not yet good at working with their neighbors to get overall system costs down. It was common for situations to occur, for example, where one utility would be ramping up a plant with incremental costs of 40 mills/kwh while their neighbor was ramping down a plant with incremental costs of 24 mills/kwh. While the individual systems were efficient on their own, greater efficiencies could be garnered the more their joint operation approximated working together much as a single system would. Great savings can result when margins allow ramping down the more costly plants in an area while increasing generation levels in lower cost plants. There were many challenges in getting multiple utilities to work together. But working together had the potential to provide great benefits to all parties. Enron and other power marketers swept into this environment. Bolstered by better communication technology, good transmission capability and Federal Regulations encouraging efficiency, marketers were able to put together and market deals to richly benefit buyers, sellers and themselves. (For information on Enron lobbying efforts that opened the system to marketers see this.)

Initially the marketers provided a great service. They coordinated numerous useful transactions, many of which might not have occurred in their absence. Cheaper surplus energy replaced more costly energy. They found buyers for temporary and limited capacity surpluses allowing some to defray excess costs and others to reap savings from delaying capacity additions. There were win-win-win situations for buyers, sellers and marketers. The industry underwent a lot of change quickly and at this time many thought that Enron and their ilk were the “smartest guys in the room”. But as it turned out the positive change and impact they could have upon the system was limited. Their knowledge base lacked breadth and depth.

A Turn for the Worse

As I mentioned earlier, my VP was an expert on power systems despite having a temporary blind spot when it came to recognizing the benefits of potential sales and purchases, and we were slow to act. The power marketers were great at exploiting such shortcomings in the system, but they were not power system experts. Because of their contributions, some gave them credit and deference far beyond what was deserved. They were in an enviable position. They had done great things and they were big and growing, but the situation they were exploiting would not provide for continued unchecked growth. Competitors flooded the markets and utilities gained expertise and confidence in doing such transactions on their own such that potential opportunities to reduce cost differences became scarcer. While many of the power marketers had big goals, they were exploiters not experts and their knowledge and capabilities would not be sufficient to maintain their existing market shares let alone allow for their desired growth.

Financial markets drove great efficiencies in the power markets. Increasing such efficiencies eventually leads to a point of diminishing returns. How did many power marketers respond in this situation given their financial pressures?   Often power marketers created deals that were increasingly complex and risky. Eventually many ended up making deals that flew in the face of basic goals and principles of power supply. Some approaches at times crossed over into ethically questionable and occasionally outright morally wrong illegal practices.

An example of an unsound practice concerns the supply of dependable generation capacity for emergency situations such as during unplanned major unit outages or extreme weather. For emergency situations utilities often relied on older plants which were no longer able to run economically. They received costly maintenance just so that they could be ready to supply power in emergency situations. While originally each utility had extra units on hand to provide firm dependable power (usually at a great cost) marketers brought about great benefits through instruments that allowed the sharing of excess capacity, so everyone didn’t need their own exclusive backup units. Initially when contracting for such emergency power there was a physical resource that could be pointed to as available to provide power when needed. Who had priority for each resource under what conditions was well understood by all participants. Those with top priority had “firm power” based on a physical resource on the ground and they could point to it and know when it should be expected to help them out under what conditions. Eventually, power marketers went beyond that and developed an instrument called “financially firm power”. What that meant was that although they did not have an identified resource on the ground, they would “ensure” firm power when needed by the purchaser through their willingness to go into the market and buy energy at whatever price it took. They projected that they would save so much money by not providing actual firm capacity that they could afford to buy it on the spot market in the rare event that they ever needed to actually provide it in an emergency.

While many in the industry were suspicious of such products, overall, the industry bought in to it. In some cases, power supply engineers accepted the new approach; in others they were over-ruled by accountants, rate makers and others who prioritized the benefits from lower costs. Some entities held the line and insisted on products that they could ensure were connected to identifiable physical resources. The short-term financial situation was better for those who trusted the marketers. One reason such instruments could work was because the system was built to be extremely reliable and although these contracts tended to reduce reliability, the system was robust enough it was not observable. While it seemed apparent to many, most did not admit that the system was becoming inherently less robust. (For a discussion concerning why it’s difficult to observe erosions in grid reliability see this.)    

Federal regulations intended to support competitiveness and open access pushed utilities towards more outsourcing of supply side resources. FERC did not like transmission owners allowing their affiliated generators to have a monopoly on power supply or even to get a slight advantage when selecting power supply options. So, marketers would develop power sales contracts which utilities had to compare against self-supply options. Regulation forced utilities to select the options that were “best” in the regulators’ eyes. In addition to products like “financially firm power”, utilities entered long term purchase contracts which may or may not be tied to specific plants, where they hoped anticipated market changes would benefit them down the road. The utility self-generation options were based on in-ground projects that did not allow such leeway to become more competitive (but maybe ultimately more costly). Unlike previous planned resources which a utility could control and see, they were now more dependent on markets and the interactions of many other industry players. Things were fine for a while. Eventually the competitiveness of the market and diminishing returns made it harder and harder for marketers to make money as they had in the past. Some took shortcuts and employed questionable and unethical practices.

While costs were going down, these new arrangements left the power systems without as much redundancy, robustness or resilience as they had had in the past. Previously, although there were not formalized sharing agreements in place, utilities would come to their neighbor’s aid with their excess in times of emergency. But in an efficient market such excess capabilities are increasingly rare and in theory should disappear. At times when emergencies happened, there were not enough resources on the ground to supply the load irrespective of the complex financial arrangements intended to support the system. When multiple parties are committed to provide “financially firm” power and there are insufficient supply sources available, the market price tends to infinity. This causes default or bankruptcy. When market conditions do not jibe with forecasted assumptions of market costs, long term power supply arrangements can force the supplier to default or go bankrupt. When resources are not available the purchasers of such instruments see little relief from their bankruptcy.

Utilities acting on their own had a lot of skin in the game. At the end of the day, they were responsible for keeping the lights on. From my experience they all took this very seriously. Marketers providing efficiency took away a lot of control the individual utilities had in the past. Bad practices, incomplete understanding of power supply and poor market conditions all but guarantee failure. Creative/illegal practices may forestall but will not pre-empt the inevitable crash. Extreme conditions happened, markets did not perform as forecasted, and many marketers went out of business either from the financial or legal impacts of their poor decisions. While it looked like many utilities were saving money along the way, the cost of the failures imposed a crushing financial burden for many.

In California, market prices resulted in utilities seeing incredible price spikes and blackouts. These were blamed on market manipulations. While there were market manipulations and gaming of the system, such problems could emerge without “evil” market participants. The large investor-owned utilities (IOUs) were heavily into the market approach. However, the large municipal entity, the Los Angeles Department of Water and Power (LADWP), perhaps because they were not pressured by regulatory authorities, followed a more traditional planning approach during this period. At the time, I saw the difference as providing a “control” group for the marketing approach. During the electricity crisis LADWP did quite well. They had sufficient energy to serve their needs and made a killing with sales into the market while helping their neighbors mitigate its impacts.

I’ve talked to regulators from California since and read many media accounts, but I don’t know that others have seen the dots as I did, let alone connected them in the same way. Overwhelmingly it seems the consensus is that market manipulation rather than market failures caused the problems. A full examination of the evidence should lead to the conclusion that market manipulations were just exacerbating a bad situation of an already vulnerable system. It seems prudent to ask if market failures and emerging potential disasters “caused” the market manipulations rather than resulting from them. We might be best served by assuming that this type behavior is inherent and largely unavoidable in failing markets. Such reasoning is not widespread, unfortunately. When the market is responsible for meeting emergency loads, no individual entities have skin in the game. There is a loss here that needs to be reckoned with. Worldwide systems where availability is dependent on markets continue to see problems.  However, conventional planning approaches, particularly those with lesser commitments to intermittent resources, continue to do well.

Dangers for Exploiters

While it’s possible to be both an expert and an exploiter, one should be wary of exploiters claiming broad expertise. Initially, exploiting inefficiencies in a system is a good thing. However, exploitation can get out of control and the recipe for failure seen by Enron could apply around innovation in many complex systems:

  1. Exploiter spots an inefficiency/improvement and use it to make significant profits within the system.
  2. Initial success leads to greater success, particularly during good times, and that party expands and others begin to enter that space.
  3. Success leads the exploiters to over-estimate their capabilities and overestimate their understanding of the overall system.
  4. Success leads the exploiters to plan for and expect continued growth and expansion.
  5. Success, money and influence impact policy makers to be overly optimistic such that they make the system more open so such exploitations.
  6. Eventually opportunities to exploit inefficiencies become less available and exploiters see diminishing returns.
  7. Pressure for growth, or maintenance of profits, leads to riskier and more questionable decision making.
  8. The realities of the system come crashing down in times of market stress.

It will be interesting to watch this as more is known about FTX to see if their trajectory followed a similar path.

Exploitation and Innovation in the Energy Arena

In the energy arena the limits of exploitation can be seen on smaller scales as well. The first to capitalize on innovations reap benefits but opportunities often close soon after for existing and new participants. For example, in many circumstances it may be possible to make money by displacing generation which has high variable costs with cheaper intermittent energy. Wind generation and solar applications can be successful. But as more participants enter that space you quickly see diminishing returns. Systems can only accommodate a limited level of displacement from intermittent resources. Furthermore, what worked on a small scale likely will not work when scaled up. (See this posting as to why the continual expansion of intermittent generating resources is inherently limited.)

However, when it comes to wind and solar, we are not as a society recognizing that we are attempting to use these resources at levels far beyond their potential. We have seen some who have made money with intermittent resources seeking to expand their operations, claiming expertise and arguing that the system can absorb their expansion and seeking to impact policy makers and regulators to aid with their expansion. But they are not overall system experts and unfortunately their plans cannot work.

It’s one thing to take apart a system. It takes a lot more ability to put it back together again. Taking apart a system, changing the parts and asking others to put it back together doesn’t take a lot of ability, but the ask is near impossible. Energy “plans” that call for wholesale changes but do not consider how the final overall system might work are not plans but rather only naïve wish lists. “Experts”, be they exploiters, innovators or highly specialized geniuses who call for sweeping change without a broad foundational background, should be meet with a high degree of skepticism. If the plans don’t account for system needs, but rather rely on innovation down the road, the skepticism should be increased further.

Elon Musk has spoken of revolutionizing our energy system, but that is just talk. I appreciate the genius of Elon Musk and he has done an incredible job in developing and manufacturing electric vehicles. He has a strong expertise and presence in the battery market. Kudos for his efforts in rooftop solar even though he may or may not one day reach his early projections there. He may yet help reshape the grid but there is a lot of work that needs to be done before anyone can outline how the grid could be replaced or radically changed. We should be highly skeptical of those with lesser credentials who say they can get us there. The grid is far too complex for wholesale redesign by policymakers. We need to watch our “experiments” with the grid and power supply and be ready and willing to put on the brakes as needed. In formulating energy policy there will be an interplay between old and new types of expertise, but serious respect must be given to proven experience.

Where do policy makers look for expertise?  There is risk in looking solely toward the utility industry. As discussed, industry insiders can be to set in their ways and fail to see the benefits that exploiters can realize by eliminating inefficiencies. It’s possible also that industry insiders might be overly skeptical of newer technologies brought about by innovators. On the other hand, ignoring the wisdom of industry insiders also poses a danger as innovator and exploiters likely do not have a great understanding of the broader system. Policy makers should seek broad input from many segments. But care should be taken when evaluating their input. The initial successful track record of Enron and other Power Marketers was not sufficient for entrusting them to transform the energy industry as policy makers did. However, we still see areas of the country that have overly optimistic hopes for the capabilities of markets to provide capacity and energy (See this posting for one example).

On the Ground versus Financial Expertise

Perhaps the biggest problem plaguing Enron (and likely FTX) is that they were too far removed from producing anything of direct value: energy, food, physical resources…. I certainly believe in markets but they don’t work everywhere.  Providing value through financial instruments has great potential to do good. Financial instruments can encourage enhancements while they capitalize on the work and products of others. But those who develop and employ such instruments are not experts in the areas they support. Policy makers, investors, and customers should not place too much faith in their expertise. When we place all our faith in the market and handicap and ignore those who provide the goods, we face a high likelihood of market failure. As may prove out with FTX as well, policy makers coupled with exploiters may be the worst combination for developing policy around a complex system. More importantly, we should not expect policy makers to work solely with exploiters and innovators to transform complex systems. Financial instruments are great, but in the end, you probably need to pay a lot of attention to experts who understand real physical things on the ground.

Thanks to Roger Caiazza for reviewing and providing comments.

80 responses to “Exploiters versus experts

  1. “Energy “plans” that call for wholesale changes but do not consider how the final overall system might work are not plans but rather only naïve wish lists.” The crux of our current policy situation.

  2. Curious George

    Tis post does not mention ERCOT. It might help to understand the whole picture.

  3. Not so sure I would characterize events as efficiency improvements. Rather, more akin to financial scams coupled with those either too lazy or ignorant to fully assess the full ramifications because of a desire for a quick buck. This has occurred throughout history. As with most clever schemes, the money is made by the initial instigators while those that follow lose their shirts.

    I recall asking ENRON executives what exactly they provided. The answer was “We provide value”. … value for who?

    Fast forward to today. The grid is exploited by politicians and companies lining their pockets with money from consumers and taxpayers forced to underwrite the green energy scam. All this in response to an utterly unattainable goal. There is virtually no chance man can direct the planet’s future climate.

  4. February 2021 showed us how well ERCOT works.
    Hospitals in Downtown Houston were without water because the Grid could not power the water pumps.

    Right now, with no extreme heat or cold, Houston is on a boil water order because power was out at a major pumping station and water pressure got lower than the limit to keep the water in the system safe.

    Each region needs adequate power generation to keep the region power online. Power from Wind and Solar transmitted over lone Transmission lines will be cut off by man or nature, not a matter of if, just a matter of whens and how longs. Even Natural Gas lines from far away will be cut off, not a matter of if, just a matter of whens and how longs.

    Nuclear and coal and oil do not depend on constant supply, each region needs adequate supply inside the region. Man or Nature will cut the long lines and disrupt the large complicated Grids, not a matter of if, just a matter of the whens and how longs.

    Look at Europe, and our Northeast and California and even Energy Rich Texas.

    China and India are building more Coal Power Plants and really doing well with exporting energy while power at home stays on.

    Coal burns hot and clean and the Particulates are filtered out in modern coal plants, we need to burn coal to help our natural gas and oil last longer.

    Build Reliable, Clean, Power Plants and make each region robust, then share excess power, but do not support the statewide grids where some group in Austin Texas decides where to roll blackouts. A hacker could take out a Grid that is so complicated and fragile that a few freezing days impacted the whole state. They plan for emergencies because they know they have built a system where huge profits come from the emergencies and many of the people operating the grid get rich or go bankrupt during the difficult times.

    This is much like Enron and FTX and every intermittent supplier that puts power into the grid that replaces base load 24/7 power makes the grid less reliable.

    Instead of a dozen or some reasonable number of base load generators to manage, we have thousands of intermittent generators that go online and offline as clouds or storms roll across.

    You can judge the confidence people have in this by the sales of home generators, I know many families that have installed home generators this year and many more wish they had done this before the February 2021 freeze. It is bad enough to be without power a few days after a hurricane, but the temperatures are not freezing. Now, we do not expect blackouts just after storms, it can be any hot or cold time or when a power line goes down in West Texas and someone in Austin decides whose turn is it for a Blackout.

    There are many kinds of emergencies that can cause power outages in many places, now we can expect trouble no matter where in the state grid that the emergency is.

  5. The bankruptcy of TXU, Texas’s largest utility, back in 2014 is another example of Exploiters vs Experts. The experts told the company and its financial backers in 2007 that those natural gas contracts locking in long term supplies @ $12 mmbf were as good as gold. Experts that couldn’t see the coming fracking revolution remind me of some other people that can’t see the coming evolution of the grid to microgrids.
    I would note this is the same TXU that went into the Australian market in the late 1990s and collapsed a few years later.

  6. All of this Green Energy is based on the theory that man can regulate the Climate with changes to a Trace Gas.

    On the NASA website, where they discuss what controls climate, there is nothing on the page other than Greenhouse Gases.

    They clearly do not study Water, which is Abundant in all of it states.

    They have no discussion of past alternating warmer and colder times and no discussion of how a trace gas could have caused them.

    Now they believe climate has achieved a steady state that only changes because a trace gas is pushing it out of bounds and that they can control CO2 and cause the future climate to not change.

    They want to limit future climate change to one and a half degrees, when in History, Climate has always exceeded that in warmer times and gotten much colder than one and a half colder in colder times.

    Their new Climate Consensus is like Russian Lysenkoism on Steroids. They believe that they have stopped natural climate change, no need to even understand what caused it, and they now think they can control future temperature and sea level with the tweaking of CO2 and they want the CO2 level to be lower where green things that grow will grow less, needing more water.

    Go figure.

  7. There are so many good things to comment on I’m going to go through it again before dealing with the substance of the article.

    So, before I forget, I want to share my reaction to seeing an interview of SBF’s one time love object and Harry Potterphile, who appears barely out of adolescence, and was/is the CEO of Alameda Research, subsidiary in crime,

    Quite simply “OH …..MY…. GOD.”

    As I was watching the interview I wondered what how could this naive neophyte could play any role in an operation overseeing billions of dollars. The world may never know. But it happened. If nothing else comes out this fiasco, policy makers should ensure it never happens again.

    • A lot of politicians are more or less on the take and happily go along with the schemes because the scammers give the politicians lots of money to buy elections. I doubt much will be done.

  8. Planning Engineer,

    Thank you for your very insightful post. As others have said: “Reality bats last.”

  9. Charlie Munger of Berkshire Hathaway likened cryptocurrency to a venereal disease that nobody wants except that it’s useful to kidnappers and extortionists. Similarly, the global warming hoax is a crypto weather and by extension climate forecast that has proven to be useful to DC/Eurocommies’ war on Americanism.

    • I think I can say the same about the U.S. dollar, and all that goes along with that in that it’s backed by what?
      We trust our politicians to control and value of the U.S. dollar as they’ve done such a great job with that.
      We trust our government.

  10. Your following paragraph is exceptional:

    “It’s one thing to take apart a system. It takes a lot more ability to put it back together again. Taking apart a system, changing the parts and asking others to put it back together doesn’t take a lot of ability, but the ask is near impossible. Energy “plans” that call for wholesale changes but do not consider how the final overall system might work are not plans but rather only naïve wish lists. “Experts”, be they exploiters, innovators or highly specialized geniuses who call for sweeping change without a broad foundational background, should be meet with a high degree of skepticism.”

    My fear is such words only reach rational people and we have a shortage of those in power.

    • The massive number of time dependent inter-and intra-dependencies among the massive number of pieces-parts have yet to be analyzed and displayed on Gantt charts.

      Failure will happen.

      • I agree. Our electrical grid will fail. The rich will buy their back ups. Prices will rise and service will become worse with more down times. When I say fail, I mean the kinds of things I just mentioned.

      • Which grid will fail? It seems to me that not all are the same or as likely to have issues.

  11. Interesting perspectives, skirting a very serious subject: the lack of planning for dependable (aka “firm”) renewable power. Many places are merrily installing solar panels and windmills, basically misrepresenting to the uninformed public, where it’s all going. Every municipality with solar and wind installed today has a big fossil-fueled, hydro, or nuclear plant backing it up, making everything seem just peachy. Utilities and developers would have the public believe they are simply replacing these generators with renewables. All well and good in Camelot, right?

    One of the favorite misleading developer/utility statements is that a renewable project, “has the capacity to supply 10,000 homes”. For the casual consumer, this sounds great. But utilities and developers conveniently use nameplate capacity (MW’s), and rarely ever quote actual production. In fact, the actual output of these renewables (MW-hours) can be estimated by their “capacity factor”, which equates a particular location to expected output. A place like Hawaii has a very different solar capacity factor (about 26%) than North Dakota, which is an indication of how much electricity will be produced over a year.

    In many places, the standard response has been to require battery storage equal to 4X the nameplate capacity of the renewable source. This sounds like a lot, but it’s barely enough to last a day in most areas. After that, in a community without backup, the lights go out and the EV’s go nowhere. Legislators need to come to terms with the huge problem of providing 24/7/365 dependable power when only renewable sources are available. Instead, some state utilities have required their utilities to schedule the shutdown and decommissioning of the power plants that now provide that backup. We are told this is essential to prevent climate armageddon. For its part, Hawaii has pledged to be 100% renewable in 20 years. But there is no plan there or anywhere else to back up renewables over cloudy/calm periods, making such mass conversions to renewables essentially a dead end.

  12. robert carriere

    In 1981, I took part in the surveying of the North West Passage in the Arctic. We calculated the thickness of the ice, depth to the ocean bottom and the topography of the Ocean Floor. This was done from February til May, when the ice was at its thickest and the temperature was an even -40. The data should still be on file and could be exactly compared to today, for climate change reality proof. The company that did the survey was called Marinav, and was on Morrison drive in Ottawa at the time.

    • Hi Robert. I don’t believe anyone needs proof of climate change. It has been changing since it was a thing. The climate is warming. So what?

      • “I don’t believe anyone needs proof of climate change. ”

        This is a central and overlooked point by the Hollywood and academic communities. The real questions are: What are the influencers of change? What are their frequencies and dynamics? Do warmer ocean surfaces produce stronger cyclones or is it the delta to atmospheric temperature that is the driver of the engine’s power? Can wildfires be prevented by better management? Do warmer surface temperatures mean more droughts, more floods, both or neither. Would sea levels be rising at nearly the same rate if the mean surface temps were one degree higher or lower? If warming causes flooding in previously cooler and dryer places does this also mean that Greenland should get more precipitation? Does that come as snow, rain that freezes or rain that doesn’t freeze?

        If we stopped digging up fossil fuel how much difference would the climate be at this point? Is there diminishing effect? Is it worth exploring technological solutions like early detection and disruption of cyclones or artificially increasing albedo by release of aerosols to the upper atmosphere?

        If CO2 is mainly responsible for the 1.1C warming since the end of the LIA will it be enough to protect the Earth from Milankovitch cooling for the next 10K years? How quickly will the oceans absorb the anthropogenic CO2?

        Does a measurement of ice thickness on a selected pole, at a selected location, tell us the answer to any of the above questions? Does it tell us about the future or past beyond the two points in time of the taken measurement? Do data points prove a scientific hypothesis or does the power of prediction of otherwise unpredictable events provide such proof? What is the scientific standard of today’s academics? Is there money or political motivations we should be aware of? How should we treat honestly dissenting scientists?

    • “…climate change reality proof.”
      Proof that in the North West Passage on a past date the ice was this.
      I am going to assume it’s not as thick now. Proof discussion over.
      What do you want to do about climate change?

  13. Exploiters in the retail choice market space are being called out-

    Meredith Fowlie, “Why Are Low-Income Customers Paying Higher Prices in Retail Choice Markets?”, Energy Institute Blog, UC Berkeley, November 21, 2022, https://energyathaas.wordpress.com/2022/11/21/why-are-low-income-customers-paying-higher-prices-in-retail-choice-markets/

  14. Don’t miss this one:

    Net Power LLC announced plans Monday to build the world’s first utility-scale gas power plant with carbon capture, which it said would generate electricity with close to zero emissions.


  15. Robert Bradley

    Samuel Insull and interconnecting ‘super-grids’ developed naturally many decades ago (see my ‘Edison to Enron’ book). On the role of Enron and mandatory open access, I cover some of this in ‘Enron Ascending: the Forgotten Years’.

    What we have today (including ERCOT) is a perversion of what would have developed in a true free market situation, which I outline here (in two parts):


  16. Purplewave India Pvt Ltd. is an AV equipment manufacturing Company. We offer a range of high-quality products such as Active LED displays, video wall displays, digital kiosks, speaker phones, conference video cameras, interactive displays, and much more!

  17. “Perhaps the biggest problem plaguing Enron (and likely FTX) is that they were too far removed from producing anything of direct value: energy, food, physical resources”


    Facebook,TV, Telephones,
    Millions of examples of businesses and people selling thoughts and words often of no direct value.

    FTX went down because of greed, chicanery and being exposed.
    Would imagine the same is true for Enron and Madoff.

    • You said telephones.
      Smartphones instead of those.
      I will provide cell phone service to you more efficiently. I don’t own anything like cell towers or fiber optic cables.
      The similarity is for me to milk all the money out of the system and we have junk cell phone towers that fall down. I want AT&T to own cell towers.
      PE was close enough with his analogy for me.

  18. Well said PE. However the renewables bubble is not yet ready to burst and until it does, painfully, warnings do no good. Bubbles are like that.

    • The contrarian solar climate forcing bubble is a a vivd case in point.

      Unfortunately , the climate contrarians in question seem not to be not the sort of scientists who publish retractions when they are wrong :


    • Russ

      The operative word in your comment was “wrong”.

      So, I thought you might want to take a whack at answering one of the great questions of our time. Why did the EPA take such a monumental whiff on the prediction of future sea level rise in their 1983 report. The actual EPA report, notwithstanding the article, predicted up to 12 feet by 2100. So in 1983 they were thinking 144 inches in 117 years.

      Nearly 40 years later, with over a third of the time elapsed and based on the tidal gauge network, GMSLR has been ~4 inches, or 2.8% of the way there, with no evidence that an obvious and significant acceleration is underway. Chapter 9 of IPCC6 said that in the last hundred years GMSLR went up 6.7 inches. At that rate, it would take a couple thousand years to reach 12 feet. But what’s a few millennia among friends. Maybe Cher would still be warbling by then, but the rest of us would have been growing daisies for a long, long time.

  19. Here is my proposed solution — NERC standards constraining the growth of renewables:


  20. Having two editorials by think tank representatives promoted in the comment section of an editorial about Enron and exploiters in general may surprise newcomers. However, to borrow a word that has been used at least five times in this impressionistic essay, those who know about contrarian epilogues understand when Denizens bring out their best. And that is when they lead with their irreplaceable obliviousness.

    Go team!

    To pay lip service to the scandal of the moment is good. To offer some detail might be better. Here is an article that provides some:

    ´You lost money?´ Anthony Scaramucci, the founder of alternative investment company SkyBridge Capital, was asked at the Bloomberg New Economy Forum in Singapore on November 15.

    “I actually didn’t lose the money because Sam [Bankman-Fried] gave me the money,” said Scaramucci, whose nickname is The Mooch. “But yes we lost money in general because the overall portfolio is going down as a result of this debacle, so yes I guess yes.”

    Last September, FTX had acquired 30% of SkyBridge Capital.

    The two sides didn’t provide the financial terms of the transaction.


    Later on the Mooch pretends to have done due diligence on SBF. This is, to put mildly, a joke. There is *nothing* about the guy that made any sense. Ask Marc Cohodes, a real expert in the thing.

    Do *not* buy Silvergate.

  21. Judith

    It is becoming VERY difficult to post on your site. The delays between when a comment is written and when it is posted makes the site unenjoyable. Why the changes from the old days when comments showed immediately?

    • Rob, not seeing any change here from Australia.
      Comment usually appears as soon as posted.
      Some other sites do block certain words.
      Some other moderators do block certain people.
      Mystery, check your keyboard lets you put in your right email??

      • I have been visiting this site since 2006-2007 and used to post often. Now it takes a long period for posts to show, and it makes the process of commenting here untenable.

  22. Thank you, PE. I enjoyed your piece.

  23. Mr. Schussler,
    From what I have seen so far, FTX is not even an exploiter in the sense you reference. It is now becoming clear that FTX’s initial reputation was based on lies (its founders’ supposed trading capabilities), followed up with incompetent exchange practices combined with slick marketing using OPM. FTX was not even recording the crypto balance of incoming deposits – which is the most basic function of an exchange.
    Then there’s the mixing of customer deposits with speculative capital, the massive losses in trades, the extremely criminogenic accounting (FTX apparently had something like 1/3 of its “book value” based on 2 different self-created cryptocurrencies; one was actually slightly liquid but the other was entirely fake market cap). No doubt there will be more eye-popping incompetencies brought to light as time goes on.
    The whole affair looks far more like a Ponzi start with a Match King finish than anything else.

    • Aplanningengineer

      I had heard that Sam Bankman-Fried initially made a lot of money by exploiting a market timing difference between Japan and the US. I understood this as the source for their money, enhanced connections and credibility and what distinguished them from other potential “whiz kids”. If that is wrong, I’d appreciate being set straight. I read it early and now there is so much out there I can’t find it.

      No expertise or connections on this situation, just watching them unfold to see parallels and differences and seemed a good time to bring up Enron, It does seem like FTX did not waste much time heading into the Bernie Madoff/Theranos mode.

      • Doesn’t look like they were doing anything wrong in the early days and they made lots of money.

        I wonder if this will ever post. I can’t seem to post here any longer.

      • A quote from Rob Starkey above is intriguing and has some relevance to this thread : “– they made lots of money.”

        In studies early on, relevant to economic activities one distinguishes between ‘productive’ activities that have value added, as against ‘services’ that have a cost but no added value. Generation and production of electric energy has added value of a product – fossil fuel-, but distribution is only a service.

        If someone makes lots of money from a service, someone else is forking it out. That money has to come from a productive activity elsewhere. When the cost of the service activity becomes greater than the productive activity that pays for the service, the system faces collapse.

        That situation was evident with Enron from its early days. The same is – or was- with crypto, – and with some of the wizardy of some banking ideas.

      • Mr. Schussler,
        The early “Japan bitcoin price imbalance” was nothing to do with trading per se so much as it was regulatory arbitrage.
        While Japan doesn’t have capital controls, both China and South Korea do.
        A major pipeline for people in the above 2 countries to evade capital control regulations was to buy cryptocurrency and transfer abroad. This resulted in higher cryptocurrency prices: bitcoin and XRP, for several years in Asia vs. the rest of the world. XRP was the prime vehicle in South Korea, bitcoin in China.
        It is 100% certain Japan’s bitcoin price phenomenon was directly a function of this; an arbitrager working on this flow had to be able to repatriate cryptocurrency from the capital flow destination back to the capital control origin.
        Japan, being the closest large capital market near South Korea and China, is a prime location for rapid turnaround time.
        So was SBF trading? Not exactly.
        Nor is it clear, at all, just how much profit they made. Note the articles are all very vague on just how much money was made “trading” in Japan.

  24. Mr. Schussler,
    From what I have seen so far, FTX is not even an exploiter in the sense you reference. It is now becoming clear that FTX’s initial reputation was based on lies (its founders’ supposed trading capabilities), followed up with incompetent exchange practices combined with slick marketing using OPM. FTX was not even recording the crypto balance of incoming deposits – which is the most basic function of an exchange.
    Then there’s the mixing of customer deposits with speculative capital, the massive losses in trades, the extremely criminogenic accounting (FTX apparently had something like 1/3 of its “book value” based on 2 different self-created cryptocurrencies; one was actually slightly liquid but the other was entirely fake market cap). No doubt there will be more eye-popping incompetencies brought to light as time goes on.
    The whole affair looks far more like a Ponzi start with a Match King finish than anything else.

  25. Pingback: Exploiters versus Experts – Watts Up With That?

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  28. Pingback: Exploiters versus Consultants – Watts Up With That? - news page

  29. Michael Cunningham aka Faustino aka Genghis Cunn

    Excellent as always, Russell. I’ve flagged this to Australia’s Institute of Public Affairs, a rational think tank, in case they don’t follow Judith’s blog. (And have told them that if not, they should.)

  30. D W
    Save America’s grid?
    Disconnect California.

    What about down under ?
    Nothing will save the grid of Australia!
    Paraphrasing a famous PM

    There is a big difference between Seitz and and Schussler though both are Russell’s.

    Thanks for the article P.E.
    Gathering some interest across the “ skeptum “ with comments from both sides

    • Michael Cunningham aka Faustino aka Genghis Cunn

      Angech, I wrote to QSuper today: “The Australian reports today that the Association of Superannuation funds of Australia wants rules amended so that funds can “decarbonise” their portfolio by investing in lower carbon options which also have lower returns. Let’s be clear: Super funds exist to provide the best return they can to their members. It is not up to them to pursue other agendas which reduce returns. Leave that to the politicians, who are already doing their best to damage our economy – and therefore our super returns – with economically-damaging emissions-reduction policies. I trust that QSuper will maintain a “members-value first” approach.”

      To their fairly fatuous response, I replied: “As a former government economic policy adviser – state and federal – engaged with the alleged dangerous warming issue since the 1980s, I think that the net zero path will be economically very damaging to no purpose, that we will come to regret it. We shall see.”

  31. Thanks MC.
    At least you are trying.
    Current level of brain activity in Australia though is difficult to detect.

  32. thecliffclavenoffinance

    I read over 12 climate science and energy articles every day of the year and publish a list of links to the best articles I’ve read every day. This article, which was the last one I read today, was exceptionally good. Planning Engineer is one of very few authors whose articles I could recommend without reading them. Yet I read his articles twice, in case I missed something the first time.

    Of perhaps 400 climate science articles I read in the month of November 2022, this one was the best, and I wanted the author to know that his work is appreciated.

    We Climate Realists have two things in our favor:
    — The actual climate, and
    — Brilliant authors, such as Planning Engineer and Judith Curry

    The Climate Howlers only have:
    — Alway wrong, for 50 years, wild guess predictions of a coming climate crisis, and always wrong climate computer games, and
    – Nut Zero, an engineering project with zero chance of success,
    which may explain the word “Zero” … unless ruining the electric grid is the actual goal

    I think we are on the right side in this political battle. This is politics — climate scaremongering, and the Nut Zero panic response to that scaremongering, is not based on science.


  33. Over on the WUWT version of this article, I express my opinion that in public policy overreach lies great entrepreneurial opportunity for those smart individuals who are of a mind to exploit it. Especially if you are a corporate CEO.


  34. Pingback: ≫ Explotadores versus expertos | Clima Etc

  35. All you Climate Doomers can stand down. Some philosophers have solved the problem.

    In recent years, however, a disparate group of thinkers has begun to challenge this core assumption. From Silicon Valley boardrooms to rural communes to academic philosophy departments, a seemingly inconceivable idea is being seriously discussed: that the end of humanity’s reign on Earth is imminent, and that we should welcome it. The revolt against humanity is still new enough to appear outlandish, but it has already spread beyond the fringes of the intellectual world, and in the coming years and decades it has the potential to transform politics and society in profound ways.

    In the 21st century, Anthropocene anti-humanism offers a much more radical response to a much deeper ecological crisis. It says that our self-destruction is now inevitable, and that we should welcome it as a sentence we have justly passed on ourselves. Some anti-humanist thinkers look forward to the extinction of our species, while others predict that even if some people survive the coming environmental apocalypse, civilization as a whole is doomed. Like all truly radical movements, Anthropocene anti-humanism begins not with a political program but with a philosophical idea. It is a rejection of humanity’s traditional role as Earth’s protagonist, the most important being in creation.


    • Yes Jim, This is alarming to me. Humanity has enough challenges. We need people to work on overcoming them. In the last 2 centuries, humanity’s condition has improved dramatically. Food is readily available in most of the world. Life expectancy is rising sharply in the developing world and increased dramatically in the developed world in the 20th Century. Modern medicine can perform miracles. If I had lived 100 years ago, I would be blind. Thanks to modern opthomology, my eyesight is still excellent. Industrial and intellectual productivity is vastly higher than 100 years ago. Our big issues such as the obesity and opioid epidemics are products of abundance and too much free time and the failures of secularism and scientism to give people purpose and values.

      The world ecosystem is in good shape. Plant life is exploding and rainfall is generally increasing. We have brought back many endangered species. We have preserved vast tracts of wilderness for posterity. All the gloom, doom, and philosophies of despair are poison for the human spirit.

  36. The AGW (anthropogenic global warming) proselytizers never prove anything–just shoot off their mouths about one impending catastrophic calamity after another that are all caused by evil businessmen–e.g., live mosquitoes, dead birds, ice that melts oooooh! And `ow `bout `dem melting glaciers?

  37. Does anyone know the (long) history of water flow of the Colorado river?

    PAGE, Ariz. — The first sign of serious trouble for the drought-stricken American Southwest could be a whirlpool.

    It could happen if the surface of Lake Powell, a man-made reservoir along the Colorado River that’s already a quarter of its former size, drops another 38 feet down the concrete face of the 710-foot Glen Canyon Dam here. At that point, the surface would be approaching the tops of eight underwater openings that allow river water to pass through the hydroelectric dam.


    • Jim

      This 1998 paper on past droughts in the Great Plains is a nice read.

      “ Paleoclimatic data provide evidence that twentieth-
      century droughts are not representative of the full
      range of drought variability that has occurred over the
      last 2000 years. The collection of dendroclimatic re-
      constructions for the Great Plains region suggests that
      the severe droughts of the twentieth century, although
      certainly major in terms of their societal and economic
      impacts, are by no means unprecedented in the past
      four centuries. Moreover, when all proxy data, includ-
      ing historical accounts of eolian activity, are consid-
      ered, it is likely that droughts of a magnitude at least
      equal to those of the 1930s and 1950s have occurred
      with some regularity over the past 400 years. A look
      farther back in time reveals evidence that the
      multidecadal drought events of the late thirteenth
      and/or sixteenth centuries were of a much greater du-
      ration and severity than twentieth-century droughts.”


    • Certainly going against the grain but that is what makes for interesting debates.

      “Despite greater uncertainties than in atmospheric projections, climate model ecohydrological projections indicate no global drylands expansion under greenhouse warming, contrary to previous claims based on atmospheric aridity.”


    • For North America

      “ Regional droughts are common in North America, but pan-continental droughts extending across multiple regions, including the 2012 event, are rare relative to single-region events. Here, the tree-ring-derived North American Drought Atlas is used to investigate drought variability in four regions over the last millennium, focusing on pan-continental droughts. During the Medieval Climate Anomaly (MCA), the central plains (CP), Southwest (SW), and Southeast (SE) regions experienced drier conditions and increased occurrence of droughts and the Northwest (NW) experienced several extended pluvials. Enhanced MCA aridity in the SW and CP manifested as multidecadal megadroughts. Notably, megadroughts in these regions differed in their timing and persistence, suggesting that they represent regional events influenced by local dynamics rather than a unified, continental-scale phenomena. There is no trend in pan-continental drought occurrence, defined as synchronous droughts in three or more regions. SW, CP, and SE (SW+CP+SE) droughts are the most common, occurring in 12% of all years and peaking in prevalence during the twelfth and thirteenth centuries;…”


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  39. Geoff Sherrington

    For Russell Schussler,

    My apologies for a late response. Your article is one of the more profound I have read for some time and it takes time to digest. Overall, I am so much in agreement that I wonder how others can argue against it. (Perhaps this makes me an exploiter, for I do not profess to be an expert.)
    A story. Two truck drivers met at a mid point between 2 cities, one heading south and the other north.
    What are you carrying?” “Eggs.” “Now, that’s funny, so am I.”
    This is a sytem that could be gamed by an entrepreneur who quietly swapped the destinations before departure, then charged the long-distance freight anyhow.
    We are now at your sentence ” It was common for situations to occur, for example, where one utility would be ramping up a plant with incremental costs of 40 mills/kwh while their neighbor was ramping down a plant with incremental costs of 24 mills/kwh.”
    If this eggs dodge went well, the person could get richer than average and display what is becoming known as ‘elites’ conduct. This conduct typically shows by a megalomania whereby the person imagines that the ability to make a quick quid is akin to brilliance that carries a licence to preach to the masses on diverse topics. In fact, all that has been shown is a cleverness to take money from the pockets of the masses and put it in their own. For this, such people are idolised?
    Modern towns and cities have distributions of goods beyond electricity. There is storm water, sewer water, gas, phone landlines and fibre optics to be easily found around the home. Most of the time these work without home owners getting involved, perhaps because home owners have had little need to be involved. (If it works, leave it alone). Electricity is now in the public eye and I doubt that amateurs like me can improve the engineering and distribution – apart from noting horrible errors arising not so much from engineers as from lay people who make policy without enough regard to engineering.
    We are at your sentence “Regulation forced utilities to select the options that were “best” in the regulators’ eyes.”
    You cover good distances in your essay. I am looking for your main suggestion about future improvement. Have you said most of it with “More importantly, we should not expect policy makers to work solely with exploiters and innovators to transform complex systems “?
    My preference is for greater accountability for decision makers. If it fails, they pay a price sort of thing. Some future action has to haul in both excessive personal wealth creation and formalising of ignorance.
    Geoff S

  40. Pingback: Anwender vs. Experten | EIKE - Europäisches Institut für Klima & Energie

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  42. Pingback: Weekly Climate and Energy News Roundup #531 – Watts Up With That?

  43. For a forward-looking research program seeking to join market institutions with evolving energy technologies, one might want to read some of the work produced by Lynne Kiesling and her co-authors: https://knowledgeproblem.com/about-lynne-kiesling/?amp

  44. “They” blame this on Russia’s war with Ukraine, but the real reason Europe has not enough natural gas is because they favored development of unreliable wind and solar over development of fossil fuels.

    Today’s Take: The Power of Rising Prices

    European electricity prices have surged again to crisis levels as the region faces the first cold spell of the winter. That jump will add to growing concerns about the loss of industrial competitiveness and the potential for companies to relocate.

    The continent is facing a triple whammy of cold, windless weather; expensive natural gas and coal because of Russia’s invasion of Ukraine; and nuclear outages in France and Sweden. As a result, electricity markets are extremely tight, with the possibility of national grids calling on consumers to reduce demand in the next few days, particularly if wind speeds fall.


  45. Mr. Schussler,
    Japan’s bitcoin price “exceptionalism” was based on crime.
    A bit of a recap: while Japan doesn’t have capital controls, both South Korea and China do.
    A major early use case for crypto was to facilitate evasion of said capital controls. XRP was the vehicle of choice in Korea, bitcoin in China.
    The thing is – once cryptocurrency is purchased in SK or China, then expatriated to a crypto wallet abroad and/or cashed out, the resulting cryptocurrency has to get back into the country. Remember that there weren’t really exchanges back then especially with Mt. Gox imploding in 2014.
    Japan is a prime location for shortening the arbitrage flow and is a large capital market. You can fly from Japan to SK in 2 hours or Shanghai in 3.5/4 hours.
    So while I don’t know for a first hand fact that SBF was really just arbitraging (as opposed to trading), I would bet money that this is what was really going on there.
    I know this because I personally know people who were engaged in these flows from California plus I have extensive background in cryptocurrency tracing/investigations.
    My point is: your assertion that Enron started clean but had to get dirty as the market matured – is very possibly not a parallel to what SBF did: criminal enterprises from the get-go.