Deregulation and deep decarbonisation feat. Edgardo Sepulveda

Hello everybody, and welcome to the Decouple Podcast, where we explore the science and technologies that can decouple human well being. from its ecological impacts and the politics that can make decoupling possible. Welcome back to decouple. Today I'm joined by Edgardo Sepulveda, a regulatory economist who specializes in telecommunications policy with an interest in electricity and decarbonization. Edgardo, welcome to the decouple.

Thank you, Chris. Very pleased to be uh to be joining you. I've been a big fan for for quite uh quite some time. Wonderful. I mean, so Angara, you're following in uh the fine tradition of uh a couple other guests of mine who have reached out to me. You said you enjoyed the podcast. Um, you're interested in a certain topic and uh that's been a real joy of of podcasting is is being contacted and having these kind of side conversations and

Um, you're a regulatory economist. This is an area that I'm quite unfamiliar with. I I tend to kind of maybe even overprepare for my podcasts. And so I might have been um procrastinating a little bit and having you on, but I think it's time that I deep dive into this topic.

Um certainly, you know, I had Meredith Anguith Meredith Angwin on uh to talk about her book Shorting the Grid and I kind of studiously stayed into certain topics within her book and dodged some of the issues around, you know, RTO. regional transmission organizations, et cetera. But it's time for me to to face my demons and and dive on in. So um

Why don't you do that famous decouple thing and just introduce yourself uh to the audience? Uh give us a that human touch or or why you're interested in this topic. Um so I am uh uh I'm uh I've been uh in the telecommunications field for about 25 years now. I my back my professional background Um uh I worked uh down on uh on uh on Bay Street for about 10 years, uh doing consulting and then went uh independent about fifteen years ago.

Um my background, I was born in Chile, so I'm a new And one of the things that I I I want to talk about is Um, the way in which uh some of these regulatory economics ideas have kind of filtered around the world. In Chile, in France, in the US, in the UK, and in Canada as well. So that's one of the things that I'm excited to talk to you about.

Wonderful. I mean, uh again for the audience, what we're really looking at discussing today is is I think deregulation of electricity markets. I didn't actually know that you were uh Chilean. And obviously, Chile was this kind of laboratory for kind of ultra neoliberal Chicago boys policy. So that that brings an interesting side to this.

You know, in terms of uh you know how this has come up for me so far in this this podcasting journey, I think probably one of my earlier episodes where I was talking with Ted Nordhause and and we were discussing uh nuclear actually, surprise, surprise to my audience.

Um and and we were talking a little bit about, you know, climate change is this wicked problem, talking about it a bit as if it were diabetes, um, but also talking about um, you know, in in Ted's worldview, you know, I I kind of refer to him as the sort of arch pragmatist, ecomodernist that.

Listen, while it may be the quickest and most effective way to do, you know, what we've done historically, these Um, you know, serialized build outs of gigawatt scale nuclear, you know, supported by the state.

Um, this is just not conceivable anymore in in the modern world in which we live. The markets have been have been liberalized. And and sort of when I was digesting that and thinking about that after the episode, I was thinking a lot about it as, you know, maybe climate change is a bit like diabetes. That's a decent metaphor, but

You know, it's kind of like as if the whole society has diabetes in a sense. It's going to impact everybody. I mean, certain people will be less impacted, but if we want to take a kind of environmental justice approach or just be optimally effective, then we need to be thinking about healthcare as, you know, Medicare versus a, you know, a liberalized healthcare market, which would be kind of privatized healthcare. And that's sort of like

Canada US healthcare comparison I think is is very interesting and and those calls for Medicare for all. I think there should be an echo of that in terms of how we think about

the underlying uh energy economics that that shape our climate solutions and our and our energy transition. So, you know, that was part of why I was really, really stoked to have you on. Um You know I The the other thing that's that's come up again in the podcast is conversations with uh figures like Robert Bryce, where we've talked a bit about

Um, you know, his evolving view of you know electricity as a commodity versus elect, you know, after experiencing the Texas blackout, starting to think about electricity as an essential good or even a human right. And I think you know it's from that South American perspective, you know, there's been the water wars in Bolivia over attempts to privatize uh water uh services. So I think there's there's so much to unpack here with you. Um

Where do where do you want to get started in this conversation? I'll let you uh direct the show to a degree.

Sure. Um yeah, I mean those are those are all issues that are super important. Um but but I think it is One of the things that because I'm a relative newcomer to the electricity really only became interested in it about five years ago, six years ago, um, in the context of the extremely political and important and and economic uh controversy around uh electricity prices here in Ontario, Canada. Um, I kind of s had the benefit of kind of being able to study this.

Rather from a kind of academic historical perspective in uh for uh the electricity sector, because my background was in. Now, you know, both telecommunications and uh electricity are more or less studied in the same way by economists. So I already had a kind of like a foot up. They're both what we call network industries. They have traditionally been monopolists that being kind of regulated. Many of the same economists analyze both sectors. So there's a lot of commonalities there.

start on that. But so I what one of the things I wanted to discuss was A bit of the history, not going too far back, a bit of the history of uh what I learned when I was doing sector, not just in Canada, but also I wanted to focus in the US. how we got to where we are, because I think that's one of the most important aspects to be able to understand how the electricity sector can contribute towards this this goal of decarbonism.

and kind of in terms of the climate. Because some things uh after you know let's say about 140 years of experimentation, some things we know work and some things do not. And so in terms of evidence, in terms of what the current thinking is amongst most um uh electricity economists or energy economists. I wanted to kind of bring that to the table from that perspective. Um and so uh if I can kick off on that, that would be great.

So y I mean in our in our little pre recording conversation We came up with this idea of of walking through I I guess kind of the history of regulation of electricity. That might sound incredibly boring to listeners, but I think, you know, maybe starting with with like the initial grid, I guess, right? Yeah. Yeah, yeah. Yeah. That would be kind of, I guess, Edison's experiment in New York. And and how did that progress? How how have things evolved in terms of grid regulation?

Sure, sure. So, so... Uh you know, most most of the public uh electricity s sort of started I think eighteen eighty. Um and it was mostly done for straight up lighting, uh public lighting, municipal lighting, um and also for the running of of uh streetcars, right? So in most countries that's the way it it it happened. It happened here in Toronto, um in in in France. in the UK with the tramways, etc. So initially uh all of that

Right. Um, it was all done by by entrepreneurs who decide who saw the need and said, oh, we're gonna start, you know, generating um electricity uh to sell. to private consumers or to municipalities to be able to for example light Um and so at that point uh Uh and that more or less remained the same uh for the next twenty or thirty years, whereby whether you look at this, you know, the introduction In Chile, in France, in the UK, uh, and especially in the US. It was all private.

Basically, uh, were given the authority to construct uh these networks because they were using the public. public streets um in return for a concession from from the city. And the concession um was a contract And it laid out the way in which the entrepreneur would provide the service, the conditions and the price.

Right. And so there was no there was no at that point that was the form of regular And then um after a little while um Especially in the US and this is where kinda like the U were sort of the intellectual leader Respect is that they started thinking: look, these concessions, this management of concessions by municipalities is kind of cumbersome. This is a very important public interest. And so therefore we're going to establish.

uh special state level public um utility commissions or public service commissions that are going to regulate Um from an economic perspective, not only these um private companies that were providing that we're providing electricity, but also that we're providing sewage services telecom services etcetera so that's where you first establish the idea of of economic regulation whereby um the the state It starts to provide some kind of public control on what is otherwise private

And so, you know, the New York State uh Public Service Commission gets established in nineteen oh seven, if I don't rem if I remember correctly. Illinois was in the next few years, et cetera, et cetera, et cetera. Um and uh these these entrepreneurs around the world uh start to establish these the small uh disjointed uh electricity companies. Um but already at that point there is some calls for um for public

For public control, direct control. Um out of is that coming like how recent is that is that coming out of kind of New Deal politics or No, it's even before that. I mean one of one of the world pioneers in public power was our own Adam Baxter.

Right. And so they they did it in nineteen oh six. It's one of the first instances of of public power generation, truly kind of revolutionary. But yeah, soon thereafter you get the New Deal you get the the telec the T VA, the the Tennessee Valley Authority. Public power. Um And sorry to interrupt again, but is this is this emerging out of like A certain type of like class politics or I'm j I'm just thinking like these entrepreneurs are unlikely to wanna just kind of give up their Yeah.

No. Their control. It's like what are what are the what's the political circumstances?'Cause I think we're going to talk later about deregulation and the We are gonna talk about it. What led to this transit? I think it sounds like there's kind of three stages. There's this kind of private entrepreneurial stage, there's this public power stage and deregulation. So I just want to understand, you know, the critical forces that that shape those

Well, for example in the y you know, in the United States where most of the uh most of these kind of uh economic and regulatory uh battles were fought, um a lot of it had to do with the what they were called robber barons. that that in the context of a of the progressive movement in the United States.

Um establish What is called anti Including the Sherman Act in 1890, the establishment of all kinds of of of processes and procedures to protect the public interest against these rubber barons who not only own the railways, but the banks and the steel. Mm. Right. These are large, large conglomerates. And so there's this pushback um after the initial establishment of large electricity companies, there was this pushback, political pushback to

to be able to exert some form of public control. Now the idea of public power, that is to say publicly owned power, doesn't really take off in in the US. Right. And and the establishment, for example, of the Telese Um but the idea of public power in terms of publicly owned

uh uh electricity companies again one of the pioneers was you know adam beck here in ontario that established the uh Ontario Hydro. Um but so there's this idea of this um balance between uh public control of a private enterprise and also direct public ownership. Of the actual entity. And that particular development doesn't really happen until um the Second World War or until. Right. So in the Second World War is when, for example, France coming out of uh the very costly Second World War.

and uh decides that as a form of nation building and control of that they will um nationalize the 200, 300 plus little entities that were providing power in France into one company, EDF. So EDF gets formed and nationalized in nineteen forty six, one year after the Um In the UK, the Central Electricity Generation Board, the CEGB, that was the state-owned enterprise, was formed in 1944. Right. Uh Hydro Quebec. I'm sorry, Hydro Quebec star.

uh with the initial uh uh nationalization uh of the uh the Anglo owned um generating uh uh company in Montreal in nineteen Um in um it's in nineteen forty seven that the Chilean government first does its nationalization of half of the electric

Right. So so what's happening here is that after Second World War there's this This idea, this ideology, let's call it, of state led And it is it is throughout the the the the West. Uh the developed West. that again in terms of the the politics driving that, um I'm a little shady in this area, but certainly.

My understanding, uh, probably my mother was telling me this about uh the Second World War was there was a real promise to the soldiers that, you know, you were gonna come back and get a better life. Like you were fighting not just the enemy, but for a better country and that there was some kind of compromises that needed to be made against we think about these kind of the tendency of capitalism potentially to create this kind of robber barring class and accumulate gross inequalities.

Was that part of what this post-war was about, or was it just also that this was the most efficient way to rebuild your nation and and its uh underlying infrastructure? Well, i you know, it it's a little bit similar, Chris, to the situation that we have now, whereby um, you know, over the last twenty or thirty years, forty years of neoliberalism, we've always been told You know, government can't do this, government can't

And now we're coming back with you. Actually, government can do a lot. And so you feel this kind of liberation of what government can and cannot do. That was more or less the same situation back in the twenties, thirties and forties. You're meaning in the context of COVID, is that right?

Yes, in the context of COVID and comparing it to in the context of the Second World War, which is this huge mobilization of economic resources, where the state takes over basically central planning in most of in most. uh of the West. And so um so ideologically there's this move towards that. Um and also monetarily the state can actually do that.

Um governments back in the 1880s, 1890s were relatively very, very small. Most governments were about a quarter the size of what they are now. And what I mean by that is that if you look at Um the size of the economy that is controlled by the government through taxes or expenditures, depending on which country you're you're you're thinking about, but Canada, the US, France, are anywhere between 35, 45 to 50 percent of the economy. um is is is sort of uh socialized.

Uh back in the day in eighteen eighties, eighteen nineties, it was temporarily. across the world. The reason being is that there was no income tax. I mean, the governments basically did virtually nothing. There was no Medicare, there was no public education, uh, there was no unemployment insurance. There was nothing, right? You know, there was just barely the police. uh maybe, you know, military. That was it. And so so if the government had no Right.

To provide these services back in the eighteen eighties, nineties. And so there was so it was only um it was only after the Second World War with the introduction of Of income taxes, the size and scope of the government, that the government felt sufficiently confident to be able to undertake this process. Plus, in combination with this new ideology of state-led So those two things come together and then you have this huge consolidation.

of of of electricity companies around the world. And then together with that, what you get is Growth in electricity. Um uh Uh and you have this institutional development in terms of the way in which these uh Vertically integrated companies are regulated, managed, and can grow. So it's at that point that you start to develop.

uh what we refer to as sort of traditional economic regulation, which is what's called It's got a bunch of different names depending on where you're where you're from, but it's kind of cost of service, COS, or rate of return, which basically says: look, um we have this. economic what was referred to as a market failure, which is basically says that Competition is neither sustainable nor efficient in this sector, right? Because of the specific um economic uh Characteristics of this section.

Um, and so therefore we should regulate it. And the way that we're gonna regulate it, we're gonna kinda Try to reach the same kinds of results as if there was competition. So we're going to kind of like have this regulatory process that is going to be a proxy. Thank you. Right. And so the way that you did that is that every three or four years, uh, a company would go to the regulator and say, Listen, I I my My load is expo is is expanding by X percent. I'm gonna have to invest X percent.

uh in terms of new generation, transmission, distribution. Um And and I would like to seek uh a rate. To be able to finance uh uh this this growth. And so the regulator would kind of say, okay, look, yeah, that's good, that's good, no, that's not good, I don't agree with that, I don't believe that forecast, et cetera. You'd have in you know parties who are interested in that.

participate in it and then at the end of which you'd say yes um you know i am going to be approving You know, you build this nuclear generator and that you build this Um and part of the process of that was that there was this what's referred to as a regulatory contract or compact, which is to say that Because we have this deal between the regulatory agency and regulated entity whereby I restrict how much money you can make. Uh but I protect you from combat.

Um, I am going to guarantee that once uh I approve of a certain investment, I'm going to guarantee. that you are able to recoup your information. And how how does that come'cause we're talking really broadly, right? We were we were bringing in an example of you know, France, Ontario, the UK, Chile. Yep.

Yeah. Um so uh you know there's Ontario Hydro or there's EDF in France. Um are you describing more of a US situation? I mean, in terms of this era, we're talking about even if it's a private utility, it's it's like this. uh vertically integrated, it's it's generation, transmission, distribution. Cảm ơn các bạn đã theo dõi và hẹn gặp lại. Yeah. Um so so is that in the states is there like one utility or there competing utilities or

It would be one utility. It would be one utility. So this is this is the Sure, one region. So you like this is your region, here you go. That's right. So this is Pri in the US it's a private utility. It's mostly private. Exactly. Exactly. That C B is public, is that? A T V A is public and they don't get regulated. They're they're they do Right. They do at cost. But Ontario Hydra, for instance, or Hydra Gebec or EDF would have something similar. Okay. Um, and basically, um

That's a way in which investment was was promoted, right? It was it was it was done in the context of a monopoly environment, that is to say that I wasn't competing with anyone else. So it was, for example, I don't know, uh PGE in California didn't have to compete. They had their own serving area and they had to go to the California Public Utility. and and ask for this kind of rate increase or rate decrease depending upon how

In Ontario would be Ontario Hydro would go to the Ontario Energy Board, et cetera, et cetera, et cetera. So you'd have these regional monopolies, whether it's private or public, and they would be they would be able to invest with more or less legal certainty that they would be able to re

So what like a couple of the criticisms I've heard, one is um you know this favored sort of overbuilding of generation capacity because if you could sort of convince the regulator that you needed this new resource, as you were saying, you were kind of guaranteed that you're going to recoup your costs.

Right. Which I guess, you know, as we've seen with with Texas and this kind of we'll get into that later, I think, but this energy only market where the kind of residual capacity was basically a hair bread. Um led to these massive blackouts. That wouldn't have been a problem. I mean, I forget what the overbuild rate is. I think it's a hundred and fifty percent or something to to guarantee a certain amount of grid reliability.

Yeah. Um, and then the other thing is, you know, it's interesting in preparing for this interview, I just I was trying to cram quickly. So I was watching a few YouTube a few YouTube videos, and they're all put out by companies that are involved in this kind of middleman trading of of these deregulated products. But you know they're saying, well, listen, there's customer service is really poor because you know you as a consumer, you couldn't go anywhere else.

That's it. That's it. Yeah. Yeah. Yeah. No, no. I mean look, it's we've you've gotta I mean, you know, just in terms of assessment, you've gotta recognize its pros and cons. And at the time Um uh it was very successful in a certain number Right. It was not successful in terms of consumer friendliness because they're monopolists, right? And whether private or public monopolists, they're not known for their, you know, for their customer relations. Nice on the phone or something.

That's right. That's right. You know, it's like it's like basically think of Henry Ford and saying, look, you can have any color car you want as long as it's black. Right. I mean, back in the day, you could, you know, for The bell telephone. You could have one phone, it was black.

Okay, this this was the other the other YouTube uh the other YouTube uh video I watched on this was saying, you know, if we hadn't deregulated electricity uh the way we deregulated telecoms, like we hadn't deregulated telecoms, we'd all still have like you know, wired phones. It would never have gone wireless. So yeah. I mean you you've studied telecommunications.

Oh yeah, no no yeah and that's it that's a whole story. But yeah, I mean that's the idea. And and the thing is is that electricity it's different products right they're talking about innovation sparking and and creating you know things like the iPhone and and within energy I think like there's this huge tendency to sort of compare and apply the Moore's law and think about energy generation the same way you'd think about

you know, developing these consumer products and I mean it's not that you generate radically different products you're still the power plants haven't changed drastically. There's certainly some moves in that direction.

No, no, there it yeah, and it's uh yeah, exactly. It's a commodity. And so and so I I wanted to get a little bit into that and I'll I'll move on to the next uh, uh, uh, uh, uh, uh, phase Chris. I I just wanted to make sure that we we kind of understood what the old model was, what the traditional model was, that was that was that served us uh in my opinion very well for about forty. Right. So so what you get is um from like after the second world war to about nineteen eighty. eighty.

So, you know, maybe even the 1990s. So you're talking about 35, 40 years. You had huge growth in terms of the electricity. Right. So just looking at some graphs here that I that I churned out, you know, earlier. In in the U in Canada, uh the uh load in 1945, so the total generation was 43 terawatt. By by nineteen eighty seven, uh so whatever that is, that is uh Forty two years. It's four hundred and eighty. Okay. Right. So that's ten terawatt.

hours a year and it was a growth of about six percent. Um in the US, um uh load in nineteen fifty it was three hundred and thirty five terawatt hours. Um by two thousand it was uh three thousand eight hundred again five percent growth literally twelve times And and so the idea that um there was over capacity. It was actually not I mean of the many critiques the critique of having too much investment was was was not really that important in the context of a hugely electric society.

Which which is interesting in our current context because you know there's controversy about, especially in Ontario, about building new assets were you know apparently oversupplied. Um, there's not an absolute need for more electricity, but in the context of deep decarbonization and trying to electrify most things. That's exactly

We probably need to do a similar kind of build out and have similar growth of electricity every year. And what what model serves us best to do that? Is it this liberalized model? That's exactly that's exactly one of the that's one of the things I wanted to finish because Because you have this model that allows you to to basically um uh increase your your load by by ten times yeah in two generations. Yeah. Okay. In two generations. Um and the current Again, it's not just an electricity set.

But over the last twenty or thirty years, not only here but you know around the world, we've basically So, you know, in in in Canada after 1987, you know, we increased demand by 1%, you know, compared to You know, after the Second World War. In the United States, um, it was actually since 2000, it's increased at 0.3%. Right. So basically no growth. Um Uh and you know and we're gonna have to double or triple the amount of electricity generated, you know, if we wanna reach our decarbonization.

By twenty fifty. So you've got to be started thinking about yes, there are pros and cons of each of these two models. But if you actually want to err on the side of a model that provides you with even more You know, it's obvious which of the models that that is more perspective. And we're gonna we're gonna get into this, but I certainly want to bookmark this because you know, Ontario uh in the early two thousands embarked

To add a bunch more capacity in this sense, it was under the Green Energy Act. I I jokingly refer to Ontario as the France of North America because we have high amount of nuclear, but we attempted to become the Germany of North America with this Green Energy Act and following a kind of an energy vendor plan. But to finance it, it wasn't, you know, this government structure. It was let's hand out these juicy, juicy contracts and encourage private investment. Gracias.

We I do want to definitely get to that, but before we get on that, let's just kind of finish that story, this transition through these models. We're getting into deregulation now. That's the same thing. What's it?

Why does why do things change? Where's the pressure coming from? What are the underlying politics and what happens? Right. Sure. So um The um the really the first the first uh neoliberal project to so what was the idea? The idea was that um already in the nineteen fifties and sixties and seventies there was already

kind of intellectual critique of things m of things monopoly, right? Yeah. Um there's this pushback. Um Uh it's coming both from from the left and from the right in terms of that you want to be able to have a more decentralized. power, uh decentralized uh democracy, energy democracy. And it's coming from the right in terms of that. Um the that the idea of public ownership or regulation of private So that whole neoliberal pro And so that gets started to build up and then

instance uh where this actually happens is is is in my home country of Chile and it was done uh at the wrong end of a gun. Um there was uh The the government that was elected in nineteen seventy, one of the first things they did is they nationalized the other of of the electricity grid in Chile. Um and then uh after the the military coup of nineteen Um The military government at the time brings in a series of reform measures that were based. privatize and to reduce the size of

in the country. And that was from in terms of telecons, in terms of all of the utilities were privatized. And so it's in nineteen eighty that is uh the instance that I'm aware of whereby a previously uh national level vertically integrated company gets privatized and uh broken up. Chile's been called this kind of laboratory of new liberation.

That's exactly it. That's exactly it. And the idea being, Chris, was that V The economists who were advising them at the time um continued to believe that that the transmission and distribution element of the grid continue to be monopolies. And what what we call in economics r uh natural monopolies. That is to say that it wasn't efficient to have two sets of two sets of wires going to your house. Right. Yeah. Natural monopoly. Right. And so there was never really much competition.

Uh and so they continue to be regulated along the ways that I just described through this kind of rate of return or cost of service rate. And that's been the case everywhere here in Ontario, in the US, in France, in the UK. uh distribution and transmission segments, which account for about 50% of the kind of investment in the grid. Generation usually is about 50%.

55%, transmission is about 10%, and then distribution is about 25 to 30%. So the the distribution and transmission were always are not put it this way. From a policy perspective, I have never really entered the discussion in terms of the introduction of the competition. The introduction of the competition was always at the generation.

Right. And so the idea being is that um you privatize that. And so therefore You get additional funds for the government. And you also have to break it up, because the idea being Um in the old vertically integrated company. Uh, you'd go through these planning processes whereby, together with the regulator, you'd determine what is forecast.

um you know demand what are the technological developments how much money do i have how much money do i want to spend and then you kind of say okay well this is what i'm going to do and this is going to go into the rate Um the generation electric sorry, the generation competition idea is quite separate, and this is refers to the kind of the energy.

Um we don't need um this to be planned either um by a uh a ministry or a state regulator. We will allow the market to determine what is the optimal level. Right. And so in order to do that, uh you can't have one person. by definition. So you necessarily and this is the case in Chile and this is the case in the UK and this is the case in Ontario. And in other countries, is that once you introduce this competitive market for generations?

It's not just enough to introduce the market. You have to actually carve up the generation assets of your former monopoly and sell them off. to be able to actually have multiple operators that can actually create the market. Right. So so in Ontario OPG gets broken up and is told as a result as a process of restructuring to sell brutal.

So that's where Bruce Power comes out of, right? And they get sold all these kinds of things, right? And so um that process occurs, starts occurring first in Chile nineteen eighty. Um in the UK after after the Coal Workers Union by Maggie Thatcher in 1984-85. She introduces in 1986 the very same process that occurred in previously and that is the breaking up of the national coal board, the breaking up of the central um uh what is it called electrical generating board and it's a privatization

And uh introduction of competition, right? And then that process goes on in the United States. And so at the state level, you get about maybe 25 states who actually do this from the nineteen ninety. In in in Canada, uh out of our ten provinces Is there any is there any underlying is it like blue states and red states or like who who does it, who doesn't, why? Why um Is there a power?

Actually it it's one of those it's one of those ironies, Chris, that in the United States, it's actually the blue state. Yeah, it's one of the interesting things. Like for example, it's like California's, the New York's, the New Jerseys, you know, all of the Illinois of the world. They are most What they call restructuring. Um and then you know the the the the this swath of in the center the Nebraskas, the the Georgias, the Floridas are all traditional.

And it's any there's a there's um there's a a bunch of academic articles that are interesting to read about that and we can talk about that. But but certainly in Canada out of our ten You have Alberta, uh, who restructured and and and and and privatized in the 1990s. You have um uh Ontario in 1997 uh and that was And then uh I think uh it was Nova Scotia who privatized but did not restructure also in nineteen ninety. So so this big push of restructuring and privatization occurred.

Uh in the 1990s, um there was not really much privatization going on in the US because it was mostly already privatized. But the utilities the generating side is being broken up. I mean, does this give you a kind of like In terms of conducting an experiment, you want to control all the variables. That's exactly what you can do. conclusions but does this give you any big conclusions you can draw?

Indeed. Indeed. And so it's been 20 years, 25 years. Um, and so um everyone kind of says, oh, it's been 10 years, 20 years, 30 years. Let's kind of review what's happened. What have we learned? Um So I just want to make sure I'm I'm fair to like the people that I've been reading. Um but the that put it this way, even the strongest proponent. the regulation have been uh have s have recognized that gains from restructuring, especially in the US and the UK, have been at the very most marked.

They have not been the very significant gains that everyone expected of this huge kind of reductions in prices, this huge amount of innovation. It has not been successful. That's the most optimistic people. The most you know, pessimistic people have said, no, this has been, it hasn't really worked out. The the numbers are quite interesting. Uh most uh Restructured states, prices for consumers have increased.

compared to the traditional states. Uh and we're talking by, you know, by five, ten, fifteen Um and that's in the US. Um we see exactly the same here in in Canada. Uh a recent C. D. Howe um uh study um uh system costs um for you know nine of the ten provinces um and you know it's not surprising that the the the ones with the three highest prices are the three rest uh provinces, Alberta, Nova Scotia, and Ontario. So what are what are some explanations for

Well'cause I I mean again, I'm I'm always trying to being in healthcare, I'm I'm trying to sort of draw it back to that. You know, and in healthcare the administrative costs just absolutely balloon. I think in the US it's five times the cost that we have to is it administration costs? Is it Well look, I mean it part of the it's administration costs. Um ERCOT, the famous ERCOT in Texas, um, their administration costs are two hundred and fifty million dollars.

a year, right? That cost wasn't wasn't wasn't uh That was or yeah, that's very high, but it's also that's just purely administrative costs, right? So all of these RTOs, etc., are are high, but a lot of it, a lot of it And this starts to get about, you know, um not only the efficiency but also the equity aspect. you know, uh whether it's energy or telecoms. Um and You know, most uh there's there's a series of economists who have basically said that.

Whatever efficiency gains may have occurred, uh have been mostly captured by the private sector in in the So one of the things about one of the things about regulation was that uh a regulator sits down, there's a transparent process to be able to determine uh what is just an equ just and reasonable rates. And you take into account that um the Productivity gains that in the sector are equitably shared between

uh the private enterprise and consumers. Right. So that's one of the things that regulators do. Um, What uh the most pessimistic of economists who would look at this in the United States would say is that there may or may not have been some efficiency. But all of the efficiency gains were actually captured. by uh the private utility. And were not passed on in terms of in terms of either better service or lower prices to consumers. And so basically it was it was it was like it was like the Who

And I'm I just I want to understand the mechanisms behind that, but you know, one of the features that really blew my mind about ERCOT um and some of these really deregulated markets is these sort of five-minute bidding wars. It seems like you know, baseload is not rewarded, uh, you know, peak.

peak demand power that meets peak demand is is rewarded up to nine thousand dollars per megawatt hour from uh i think i don't know what the base rate is but it's something it's that's something like nine hundred times the base rate or something I mean that's a good idea. That these these just seem like you know incredible amounts of volatility. Is that is that some of the mechanism as to as to how these uh potential efficiencies get um privatized? Um

Or there is there is there like I I heard with Enron in California there was certain manipulations to actually kind of create artificial scarcity to drive up prices. Like Yeah. Uh you know, a lot of it had to do with a lot of it had to do with um um that there was just there was i you know like it we don't even have to think about it as like a nefarious kind of affair like that, Chris. It's just the the way in which the way in which that if there is Um a way to be able to um extract.

um i where you're able to generate uh efficiencies and and and and if there is insufficient uh way in which you can um pass on those con those savings to consumers. I think I think you will do that. Um but but beyond that, um, you know

uh we'd have to go into uh a bit more of a detailed explanation about that. But but but the the the the the numbers are are very surprising because uh you would think that a regulated or a deregulated market would be more, you know, efficient, would have lower prices, but that is simply not There's a whole bunch of different uh explanations for that, Chris. Um, but but One of the other components of that are the environmental environmental mandates.

uh that were more prevalent in deregulated uh markets than they were in in regulated markets. So I wanted to get a bit about that as well.

Let's dive into that. Right. So um so you get this restructuring, um you know, you get in the UK, you don't get it you don't have restructuring in France, right? They maintain EDF vertically integrated company. Um And then what you get is you get two different Um yeah starting you know 1990s, 2000, you have environmental movement and the idea of

of greening the grid, right? And in the absence of of a carbon tax and then the other kind of national policies, the way in which the way in which uh um uh environmentalists uh push for the greening of the grid is to essentially and it's the same case here in Ontario is you you push for um what are called environmental mandates Right. And the the term is um I think they're called uh renewable portfolio.

standards, um RPSs, and it basically says look, um to a power company in in in California, Florida or Ontario, where you basically say, look, you have to have uh X percent of your of your power generated by renewable

Right. Um and these mandates are present in about thirty states in the United in in Um and you know sometimes they're you know you must have 15%, you must have And so it's the way in which outside of regulation, it's usually these are usually uh established either by um the state legislature.

California Senate or you know, the Nebraska Senate, et cetera. Uh, which is the same way it was done here in Ontario, which is through the the legislature uh establishing certain uh uh you know, the Green Energy Act, for example. And you basically start to load the system with these mandates.

that are um that are externally imposed, right? And and so one of the things that happens is that these are one of the pro to increase prices and the increase prices more in in in in deregulated States than in in regular.

Um and one of the things that we found after the fact is that these price, these uh renewable portfolio standards are being quite expensive. They have reduced the amount of greenhouse gases, um, but they've come at an extremely Um mostly um uh they're being estimated at between 150 to 200 dollars. per ton avoided. Um and that compares to

the benchmark of a social uh cost uh of carbon of about fifty bucks, right? So in terms of cost benefit, it's a very expensive way Um and also the other thing that uh we found is that the imposition of these um uh these environmental mandates have also had um a A regressive effect. In terms of that, they're being expensive compared to sort of the bang for the buck that you get, but also being regressive in terms of that the Bye.

A greater burden on low-income families and households. And most of the beneficiaries have been kind of higher income households. And just in terms of the pragmatics of that, um, this is as a result of That's right. That's right. You know, I think in Tr Ontario it's forty four cents per kilowatt hour. I think up to eighty cents per kilowatt hour when the price of electricity is, you know, thirteen cents per kilowatt hour on the grid.

I I wanted to I wanted to get into this a little bit with you because you know you're mentioning that there's kind of uh attacks from the left from the right, but also from the left on um you know these uh vertically oriented centralized groups. Um and I think that might be surprising for some folks on the left. Um, you know, certainly I I've I've been developing my thinking a little bit on this and starting to really think of the grids as as a commons.

Um, you know, that's you know, it's an essential service. It's in Robert Bryce's words, the network that underpins all other networks. Uh the power went out at my hospital uh two days ago. I mean, luckily we were saved by some batteries and pulling in a massive diesel generator. But I mean, the things we take for granted, right? Right. These essential services that depend on the grid and and the addition of certain power sources that potentially fragilize the grid.

um, you know, these other issues of, you know, privatizing the profits from, you know, investors in, you know, these very cheap technologies like wind and solar, but not accounting for the, you know, the socializing of the costs of of grid integration. So I wanted to get into a little bit of You know, these underlying politics and the ways in which the left I mean, there was a a recent piece I saw by Fred Stafford that was looking at um some attacks from

I believe some left wing environmental groups on the T VA and calling for it to be split up so that there'd be more competition that would enable uh renewables uh investments to to happen. So let's let's uncrack these kind of left critiques and and what's going on there because it it it's kind of counterintuitive to me, but maybe my my kind of left isn't their kind of left. Yeah. Um, Well look, I mean I c I can again, I I don't wanna uh I wanna be fair to You know, to that critique.

Um but I think the critique comes from um the idea um of a kind of non-responsive uh large entity, whether it's private or public, Um and and certainly from a private perspective in the United States. where a lot of this comes in. I mean we get in Canada, Chris, I I tend to feel that um a lot of the critiques that are kind of like come across the border biosmosis almost in terms of that, you know, when we think about power, you know, in Canada we continue to have

Uh I wanna say maybe eighty, eighty-five percent of our power is public power, right? There are exceptions. Um, but even in Alberta, which It's liberalized, you know, many of the generation. authorities are owned municipally, right? Whether out of uh you know, Edmonton or Calgary. Um You know, certainly Manitoba, hydr uh you know, hydroca bag.

BC, Hydro, etc., these are all uh public companies in Newfoundland as well. So, you know, we're not, we're actually the opposite of the United States. If the United States Eighty five percent private. maybe five or ten percent municipal or co op and then a bit The T VA we're exactly the opposite. We're like eighty Um so so the idea that you know this uh you know, this left critique of private

where you could think of like, you know, Mr. Burns in The Simpsons, right? That that doesn't s that simply doesn't is not applicable and has not traditionally been applicable in Canada. So so I think there's a separate concern, and the concern is about centralized power, right? About non-responsive.

collective solutions and I think that's where part of it comes thing. There's a bit of kind of libertarianism, a little bit of, you know, being off grid, being able to be your own utility. That's the kind of I think critique that is coming from. And yeah, i I mean to me uh it is surprising because It is you know, economically not efficient way to restructure your your your process. The you know the reason that we don't all I don't know uh have, you know.

a backyard garden and have poultry and have et cetera, et cetera, et cetera. We that we treat our own sewage, et cetera, is that there are certain public entities and public goods. Whereby, you know, ideology aside, just the pure economics of it is more efficient to be.

provided collectively, quite separate from whether it's you know owned privately or publicly. But but the idea is that their economies of scale and scope, that they these are natural monopolies And and and sure, the technologies are sometimes different, that you can have more distributed um uh systems. Um but you know to me it just doesn't make economic sense. It's much more So I I don't know if there's if that kinda answers your question.

Yeah, I think that that gets to it a little bit. Okay. Okay. All right. Um and so uh I wanted to talk a bit about because I know that you're interested in that. Um and and I mean I guess I guess my my curiosities uh and I I certainly want to hear sort of uh where you're where you're coming from, but you know, in particular what I was kind of leading in with is the future of uh the finance of of nuclear.

Right. Um in this kind of liberalized electricity market scenario. Yep. Um, you know, I was talking with a friend of mine and and we were just we were talking about the characteristics of Ontario's nuclear plants where you have you know, four or more commonly eight reactors on one single site, you know, these serialized build of the same design.

Um really taking advantage of economies of scale. I mean, even we when we were building coal plants in Ontario, they were massive, like four gigawatt plants, right? Yeah. Yeah. Um, you know, and and that was I from what I was uh my friend was explaining that was a result of, you know, this being publicly financed and the ability to think, okay, well that's how are we gonna most efficiently provide the service? And in that era of adding on five or six percent of

our electricity load per year, that that made a lot of sense. And in the era of needing to decarbonize quickly, that makes a lot of sense. But it seems like we're kind of confined now by our current um electricity markets to that not being possible. And and that's when

ideas of, you know, SMR advanced nuclear maybe become more attractive because maybe those are malleable and can fit into private funding model or or renewables become more um ach achievable. So that's that's kind of an area I really wanted to Okay. Yeah, no, I'm happy I'm happy I'm happy to delve into that. Yeah. So so um one of the one of the So whether you w you know so whether you listen preeminent energy economist David Newberry.

here in the United States, um a guy called Severin Bornstein, uh Jasco, um You know, these are the big proponents in the economics field of the studying and analyzing. of you know restructuring and privatization and then um and then kind of in in 2020 hindsight um across the board there is a recognition that that the the the market

Have been successful at certain things in terms of efficiency. They have not been particularly good in terms of sharing of the benefits to consumers or no better than the old system. But one thing that they've really failed at. is at uh promoting the incentive.

For uh for Um and so what you get in these energy markets, uh these energy-only markets, is that um they start to become the exception rather than the quite early on in the process, people recognize that That to be able to provide uh uh sufficient investment that is long lived, whereby you're gonna have to have decades to be that that liberalized energy only markets are not

This was not something that was foreseen when initially these restructurings occurred, right? This was not people saying, oh boy. One of the downsides of introducing these markets is that we're not going to have sufficient incentives for people to invest in the long-term viability and reliability of the bid, of the grid. But eventually people started to come to that and it was not such a big problem in the Basically, what was happening is that we already had a fair bit of capacity going into

processes as I mentioned in terms of the UK or the US or France, you know, they grew quite uh extensively uh you know until the 70s and 80s. Demand started to kind of stagnate. And so we didn't these this crisis of reliability, of lack of investment, whether it's from the private or the public, we only start to see that, you know, over the last 10 years in markets. And analysts, including economists, are starting to see this.

Right, whereby these markets are doing some things pretty good in terms of dispatch, in terms of efficiency, but they're not providing the kinds of long term invest sorry the long term environments to be able to provide sufficient investment. This is what we refer to again in economics is a

Right. Basically, um, the markets aren't doing what they should be doing, which is or they're doing one thing they're doing, they're doing well, is they're providing efficient dispatch, et cetera, et cetera. They're providing marginal costs. But Because of the design of the market. And because of the the addition to the market of subsidized renewables through all these processes that we've Which drive the actual market clearing price even lower. And just

Just to just to get into that really quickly, that's just this idea that you have a resource that can really dramatically overproduce. It's getting enough subsidies that it can sell for zero cents or negative price. Or even negative. That's exactly it. And knock other reliable sources off the grid and penalize them. Is that Right. Unique to deregulated markets or is that It is, it is, it is. Because in in in in regulated in in regulated traditional markets there is no market.

Right. There is no there is no clearing price. And again, this clearing price is that idea of like an every five minute bidding and that's what drives a lot of these administrative costs. And volatility in the price. It's the volatility and the price. Yeah. Yeah. So so in a in a vertically or or uh integrated uh traditional market, how does that work again? That's just you're just paid like a you I don't know. Uh can you tell me how how right so so for example so so um so uh all right so

Alberta. I'm gonna put uh I'm gonna use Alberta. So in Alberta you have uh a gas generation station and you have some wind and you have uh some hydro, right? And so um there's a market clearing price. And people put in five five minute dispatches. And so um there's this merit order which says, okay, look, I need X amount. And when I get to that X amount of kilowatt hours, I'm gonna pay that. that kind of marginal uh generate uh generator, that's the market payment.

Right. So it's not that it necessarily knocks out all the other people, it does the people that are higher, but that establishes the price.

that that everyone gets, regardless of how much they bid. Right? So for example, what's happening in in uh in nuclear power in in um I don't know, say in New York or Illinois, whatever, um you have the prices, the marginal prices that everyone is getting paid are so low that not only not only hide but not only uh um not only nuclear but also hydro are actually not it's below their marginal Right. And part of that is just the design of the market combined with um

The the addition of these renewables uh on a subsidized basis. Um, and also just the nature of the economics of the renewables that are very much. you know zero marginal cost. Um so when these markets get designed in the 1980s, right, they weren't designed uh necessarily for generation um uh technologies that had virtually zero And so you have this design Sorry, can you just explain zero marginal cost again real quick? so so um the the the the the operational cost of a Yeah.

A gas plant, a natural gas The workers, the fuel, the The workers of fuel, but also the fuel. Um uh they have their their fixed costs, right? Which is the actual plant, but on an ongoing hourly basis. Their only cost is the the price um for a wind farm. Once you've purchased the turbine, your marginal costs of producing an extra kilowatt hour. Right. And so that's that cost that goes into That cost is what goes into the pool in the middle of the year.

And it starts to drive the costs down regardless of of of uh and so what's happening is that there are certain uh like hydro dams versus the marginal cost. And so um what you see is that uh nuclear plants uh plants in this um liberalized environment um sometimes can't even meet their marginal cost, which is why they're having financial problems.

But but more generally what we're seeing is that You know, these analysts are starting to look at the introduction of renewables, their particular cost characteristics, um, it's not that they're necessarily less costly or more costly, but they may have lower marginal cost and higher uh kind of fixed cost.

That was less important in regulated environments. We really m cared about total And and the total cost would have to be like the the paying for the backup costs of a source comes on and off really rapidly.

Yeah, that's exactly it. You know, in that situation people start to realize that these markets have a fundamental flaw, which is that they're not sufficiently uh producing incentives for long-term investment that is going to be required in decarbonization and just generally in terms of reliability. And so they start these market designers, economists, start to add

little tweaks to be able to kind of take those into account. And those are called like capac capacity mechanisms, right? So you have an energy only market, but certain other markets. the the RTO pays people two or three years in advance to make sure that they have Right. So they're dealing with this market failure by adding additional secondary mark. But they're only looking two or three years in advance. They're not looking

And who's responsible for reliability? Cause that I think that's the the key differences in this regulated markets. It was this vertically oriented thing. And the whole thing was we're gonna we promise we're not you're not gonna have a We're gonna make sure that you know, and we'll do whatever it takes and we'll contract X, Y, and Z sources for that. And nowadays is there anyone bottom lining that? Okay. It's the RTO mostly. Yeah, it's mostly the regular.

It's a mostly regulator who's responsible for making sure that they have capacity. But again, it it's they're trying to um kind of like a stop gap. to deal with this fundamental design issue that a lot of you know these these prominent economists have basically given up on because they're saying that um that these are not likely to work in the future if we need to be able to Um generation to actually meet a deer

Objectives. Okay. Um and so There are now four or five different ways in which people are thinking about nuclear and other firm. uh generation sources to be able to deal with these challenges both in restructured and introduced Right. Uh so that's what I wanted to kind of discuss. Yeah, for sure. Cool. Um so um so for example, um in Hinckley Point in the UK, uh they have a

regulated uh sorry uh uh uh competitive market. Um but they realized that um there was this this market failure whereby no private entity would ever try to go into a market um where the prices were fluctuating, where we didn't know where the price would be next week, let alone five years, ten years, thirty years, fifty years down the road. Right. Um And so no one was willing to take To do that. And so what the ministry did there is they established what is called a

Right. Uh, and this is sort of what we do here in in Ontario as well, which is basically says look, we're gonna sign a contract with you. Whereby we're gonna guarantee you a Um and it's gonna be say 10 cents, uh 10 cents per kilowatt hour. Um, and we're gonna pay you that regardless of what the actual market. So if the market price is two and and we've guaranteed you ten, we're gonna pay you ten. We're gonna we're gonna you can get two from the market and we're gonna pay you eight.

If the market price in fact goes You're gonna have to pay us back the difference between the ten that we've guaranteed you uh and and the uh And the uh And the 16 that you're actually getting from the market. So that's one way in which uh in in in restructured markets, um one of the kind of regulatory and economic mechanisms via which governments Have started to use to be able to promote long term investment, including of nuclear.

Okay. Um and that's been approved. That was approved Signed off. by, you know, the European Commission'cause uh among other people, Austria and Germany uh appealed it because they thought it was anti competitive. But that was that was that was reproved. They're both, but I mean they're using it because of the anti competitive. Yeah, they took it they took them to the

You know, we're uh I wanna probably wrap up soon'cause we've been going for about an hour. Um but the you know, I think a big question on people's mind, there's obviously a lot of politically motivated closures of nuclear, particularly in the US. Um point and Diablo Canyon stick out, but there's also like so called economic

Um, motivated closures. I think Byron and Dresden might be included in that, where their operator, I think Excelon is asking for subsidies or else they're gonna they're gonna shut them down. Right. And in terms of my basic understanding of nuclear economics, you know, you have these enormous upfront capital costs, interest becomes a significant portion of the uh the running of the plant and the economics, but

Once these assets are 30 years old, they're supposed to just be paid off their debts and they have low fuel costs. They're supposed to be just cranking out electricity and getting paid well for it. So why why are these plants economically stressed? Right. Well it's it's just the market, right? So so so uh so in Illinois and in um in New York, which are two liberalized states. Um the the market clearing price is is below below the marginal the the the the marginal cost of producing

nuclear power in those in those two kind in those two states. Right. So for example, you know, it may um it may take um you know so if the market Why is that? Well, because the market because the market price is not reflecting um is not reflecting is or is not valuing um the idea it's only valuing Every five minutes. That's right. That's right. That's right. So that's the m that's the market failure component.

So and if that nuclear plant goes offline, is it likely to drive up the the generating cost? Like is that just an illusion? Because you once you have that secure base load, then you can you know just value the the peaks, right? But if if you don't have the secure base load, is that is that gonna change? Yeah. But markets don't value that. So that's a thing, right? It was in a in a traditionally integrated company uh

industry, you could actually talk about and say, listen, what is it that we value? Do we value reliability? Do we value capacity? Or do we value the one single thing, which is the market clearing price? for those five minutes, right? And so that's one of the problems that's happening is that Um the market the market clearing price is just low for not only nuclear but for a lot of other Um a lot like I think even for hydro, certain parts of hydro are not covering their cost.

And it's not that and again, it's just a pure focus on marginal costs rather than the overall cost and the benefits brought around by electric by nuclear power. So one of the things that people are doing in uh both in New York and in Illinois is They're introducing uh some of these what they call zero uh zero emission credits, right? So in the same way that These uh renewable uh portfolio standards were introduced to or mandated to um to introduce uh wind and solar into these markets.

Associated with their there were subsidies through what are called recs, which are the renewable energy credits, right? So if you're a wind producer, um uh you were uh it was mandated that you would come in. In addition to that mandate, you would get two kinds of different benefits, which provides you these subsidized costs. One is you'd get either a production or a generation tax credit, which is the way in which most of the United States uh renewables um industry is financed.

And you would get a renewable energy credit, which is something that you could then sell in a secondary market to further provide you with. Uh additional revenues. So between your production and investment tax credits and your It was very, very expensive, right? And that's where some of these costs, these expensive costs come from in terms of the introduction of renewable. So what's happening in Illinois and New York?

is that the legislature there um uh introduced what are called zero emission Right, which is basically um uh they were providing um these credits. To recognize plants were generating electricity with zero carbon. So that is to say to try to deal with that market failure whereby the marginal cost is only valuing the price of the electricity. It's not valuing that it is

you know, that it is produced sustainably, that it is produced without you know carbon emissions. And so they introduced these um zero emission credits in order to, among other things, to help Um on a on an ongoing basis, the difference between its operating costs, right, and the marginal price that they were being able to get from the market.

Okay, I I guess one final question. There's the I could talk to you for hours because this is an area I'm eager to be more educated on, but for the sake of our listeners, um I think there's a big question about, you know, in sort of an all of the aboveism approach to uh combating climate change. We need everything. Um, you know, there's renewable bros and nuclear bros and there's lots

f kind of energy factionalism in this debate. But right, you know, s a question I've really been wrestling with is is whether nuclear and wind and solar can which are the dominant tools of for decarbonization in terms of something that's scalable and not dependent on You know, hydrology or you know, you know.

geothermal uh resources and things like that that are highly localized. Um, you know, is whether these whether these guys can get along on the grid. And I mean, certainly in Ontario, um, there's physical reasons why they don't get along very well. Um, you know, with

wind in particular producing really out of sync with demand at nighttime and in low demand seasons like spring and fall. And initially I think they were allowed first access onto the grid to sort of support them and that would knock nuclear plants offline.

Nuclear would be off for three days, wind would die down, gas would step in. We were, I think, saved$200 million of gas when we said, okay, no, you're gonna have to curtail the wind. We're gonna keep nuclear online. Um, and it's also better for emissions.

Um so there there's those sort of um I guess physics based reasons or or just the pragmatics of the sources, but In a liberalized energy market, can nuclear and wind and solar get along or I mean is that is that I guess this is a zero zero emission credit system that's attempting to do things like that, but it From another

economics perspective, when you have a source that can come online um with zero marginal costs, bid so low, and you know, make a pile of money because no one else can compete. Right. You know, d can they work together? Is that Yeah. I I I think my my my kind of evolving view on this is is the answer is no, is that I think one of the things we've learned over the last 20 or 30 years is that there are certain uh attributes of marketing.

in the electricity sector that do things very well. And there are the things that that markets don't do very well. And so one of the one of the ongoing debates is about um basically carving out different components of the market, uh of the sector, um and basically um uh moving back some of the uh some of the mark like in markets, put it this way, in markets that

have liberalized, which is for example, you know, the UK is of the world, half of the United States, and like 20 or 30 percent of Canada, right? In those markets, um what we're what I see the trend towards is basically this this bifurcation whereby you have certain markets, certain, certain components. that for where um Uh renewables in particular can work relatively well to do certain things.

and and the kinds of um market signals that are coming from those particular um generation technologies do not have to basically mess up the rest of the Yeah. And so what we're seeing is we're seeing that uh increasingly uh economists are are saying that these that that the markets were not designed to be able to incorporate um both these very low marginal cost things, uh, such as wind and solar, and the more traditional generational um

technologies. And so we're gonna have to necessarily separate them out, which is essentially what we've done in in in Ontario. Other than the dispatch, Chris, we have basically different segments of of the industry are dealt with separately. So, you know, the you know, nuclear is either done by contract or by regulation. Um, you know.

wind and solar are exclusively by fits and contracts, right? Um and so that's the way I think whereby that you're going to be able to have both the benefits um uh of of sort of five day uh sorry five uh minute uh market clearing processes where you're gonna get some very low prices.

to the benefit of consumers as long as it's not subsidized and you're going to be able to have a different component whereby you're going to um be able to guarantee reliability um zero cost carbon and being able to provide that if the government doesn't want There's gonna be incentives for uh for the private enterprise to be able to commit to, you know, five year, ten year, twenty year, thirty, forty, fifty years. So so I I see that uh this experiment of purely liberalized energy only market

um has not been successful. It was good for 20 years, but it's not going to be serving us well into the future. And but you know, I don't want to throw away the baby in the right. But but there's other components that are equally uh important. that we need to be able to think about how best to achieve um you know our decarb decarbonization of

Two well one I'll wrap it into one big question. I'll try and hold you to like a minute or two to answer. But sure. Um I guess the question is sort of can we go back um politically and secondly or maybe more importantly Um is there a future? Can large scale nuclear be built again within these liberalized energy markets? I'm not sure if Vogel is being built in a unregulated or regulated one. Is there is there ever gonna be It's regular.

So in an unregulated market, are we ever going to see large nuclear being built again? Yeah. So on the first question is yes, we can go back. Um California went back after Enron, right? They liberalized and then they put Right. And basically um Uh California was the Fukushima uh of liberalization. Literally

2000 was like all of the regulated all the regulated states that moved on to deregulated, yeah, nothing happened after 2000. They all learned their And so what you have now, the structure you have now is basically the structure that that developed from 1990. At two thousand, that was it. It was done. Right. Everyone learned their lesson. No politician, no legislature, no regulator was willing to go through given what had happened.

Only twenty-five states are liberalized and the other twenty-five aren't or That's right. I gotcha. Okay. Right. The first twenty five did it in those ten years, right? Matt. Re I mean, not to get into the whole Enron thing, but the re regulation of California is part of what really sunk Enron in terms of hitting their bottom line'cause they'd been sort of manipulating markets and

That's right, that's right, that's right. Yeah, yeah and there was a success. And who knows, I mean we'll we'll see what happens after Right. I mean it could be after Texas that people start realizing that yeah, it is time to either re-regulate, restructure, or carve out a portion as a Five minutes ago, carve out a portion where you say, listen, this portion is really what's important, reliable, and we have to be able to introduce new things there. Um, the UK, the Western pioneer in terms of

you know, regulation, thatcherites, economics and all that kind of stuff. Uh two thousand uh two thousand thirteen. um uh returned m to many of the very same um ideas that that they had jettisoned, you know, uh thirty-five years, you know. Everyone talked about everyone talked about that this is the the new CEGB um in the UK. So so there are lessons and people do take these things. There's analysts who are working on these issues, but it does require Now in terms of liberalization, look.

Half the markets in the world we haven't even talked about China or Russia, et cetera, these are not liberalized markets. Right. The liberalized markets we're referring to are the you know countries of Europe, the UK, uh, you know, North America, right? Everyone else has not did not take on. this kind of like euphoria of restructuring. Right. Right. This is very much a kind of like

uh Western idea, uh with a few exceptions in, you know, for example, in Chile. Um and so, you know, in those markets, nuclear will continue to do what it needs to do. Within the West, you still have a certain number of of liberalized markets. And in those circumstances, it will be very difficult for nuclear. because of its characteristics of the requirement to be able to um uh be able to uh finance something that is not going to have a payback for thirty, forty, fifty years.

to finance that and not to be able to hedge the rest. Um in terms of future prices. where those kinds of uh capital markets simply do not exist, which is another form of a of a of a market failure, that'll be very difficult to do it. So what you have to do is you have to do, for example, what the British government did uh for Hinckley Point, which is to provide these kinds of special carve-outs that were initially invented for renewable.

Right. But but economically they're now being used for nuclear. The zero emission credits, for example, in Illinois and New York. Fifty year contract. by the government of Ontario with Bruce Power. For example. Um for size well in the UK, uh, we have uh basically a proposal to be able to finance it through uh rate of return regulation, what they call the regulated.

So so it's all kind of like, you know, back to the future in a way. You're going back to the regulatory tools and mechanisms that were developed. 50, 60, 70 years ago, that were proven to be able to provide a steady stream of revenues to be able to make a project such as nuclear bankable. You're going back to those kinds of things. It's not going to be likely possible in an energy only market.

Where there's virtually no guarantee of tomorrow's price, let alone the price of you know 20 years from now. And when you're competing against highly substitute. Gener uh renewable technology. Well, I think we'll have to leave it there. Um, fascinating conversation, and and I I probably will have you back to to deep dive this a bit more. I'm just particularly interested again in in looking at um you know why the left uh tends to often line up with these.

I guess kind of conveniently with some of these liberalized uh energy market ideas when it's when it's convenient to their technologies of choice. So be interested to have you back to explore that a little bit more. But this has been really eye-opening. Um thanks for reaching out to me again, uh other listeners, if uh if you have an area that you're really passionate about, um feel free to chat with me. I might have you on. Um Edgardo, where can people find you and your your work uh online?

Um well I'm on the The initial blogging that I did uh on the Ontario electricity sector was in the Progressive Economic Forum, which is just what it sounds like. It's a group of progressive economists who blog about different things. So progressive economics Uh and I'm on Twitter at uh at at uh E underscore R underscore Sepulvita. Yeah, I'll put that in show notes for him. Okay. All right, Egan. Thanks, thanks so much for coming on. Okay. Thanks, Chris. Bye. It was a pleasure.

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