New York City At the Institute for Energy Economics and Financial Analysis during the second day of the organizing conference, we witnessed a fascinating argument, disguised as a debate in the question and answer section, between a number of environmental advocates and a hedge fund manager over the competing values of social justice and solar power in net pricing, primarily as it is practiced in California. The hedge funder was arguing the case of social injustice, calling net utility pricing a direct intra-ratepayer subsidy by the poor and regular consumers, particularly tenants, of the rich, upper income investors in solar power, who owned the buildings and were landlords. The environmentalists were querulous advocates of the need for renewable energy investment by any means necessary.
Jonathan Barrett is the managing director of the hedge and equity fund called Luminus Management, which specializes in the understanding and investing in the power and energy markets. He’s originally a South African who has bounced around several merger and acquisition jobs on Wall Street. He’s on the board of a nonprofit called Hedge Funds Care for Children and the Harlem Charter School. From his remarks he’s politically and ideologically conservative, believing for example that all government investments are bad, that regulations are evil using as his example the telecom industry versus the internet (ignoring the government investment there!), and that the Republican Congress may get the budget under control at another point. Suffice it to say, he is a most unlikely advocate for social justice for the poor, but there you have it, which also explains how complicated the issue of net pricing is, and against all odds how compelling his case was, despite his serving as its knight and unlikely champion.
Net pricing, particularly as practiced in California, requires that all excess power generated by a consumer-based supply, like rooftop solar, rolls the meter back towards zero and when there is a surplus has to be purchased back at retail rates by the utility company. He argues, that net pricing has to disappear, and others in the finance energy agreed with him, because it is financially unsustainable. The utility is having to eat its own cost of transmission, sunk generation costs, and has to guarantee that it will still provide the same customer with electricity at peak usage periods and pay the price to do so, which means that it loses money on the net pricing transaction to that particular consumer. Where Barrett wins the point is that there is no governmental subsidy, but a subsidy from other ratepayers that are underwriting the initial investment of the landlord or homeowner who are quickly getting back much of their investment and being paid an unrealistically high price, which the public, investor owned utility has to then pass on to the poorer consumer, making it a highly regressive tax of sorts.
Environmentalists tried to counter his argument by trying to argue that other industries like oil were subsidized or that renewables like wind and solar were new industries and deserved subsidies, but there points were glancing and easily batted away by Barrett. Wind, he argued, was an old industry, oil he easily argued was crony capitalism based on special interests pleadings, but it hardly mattered. It was all easy work for him since the various environmentalists that appeared before the floor microphone had no direct argument that this was not an income transfer from the poorer to the richer and therefore regressive. The other members of the panel one from JP Morgan and another from a foundation, wisely kept their own counsel and slumped down lower towards the table as Barrett dispatched the arguments with some pique.
There was a fairer contest between the two Wall Street wheeler-dealers on the issue of yield companies and how long they might last with an investment before they inevitably lost their shirt and the fact that regular Joe’s would be fools to invest based on yield since only luck would keep all of them from going to the cleaners. That argument was also fascinating, if any of us had had a couple of extra hundred million to throw into the game with these financial sharks, but “net pricing” was an education, since in a kneejerk way many of us might have just assumed it was a social and community good until we witnessed Barrett’s performance, but now in the words of Poe’s raven, can do so “nevermore.”
Please enjoy The Wrong Year by The Decemberists.
Thanks to KABF.