New Accounting Gimmicks Benefit Electric Utilities, Hurt Taxpayers

Townhall.com ^ | December 19, 2020 | Jason Isaac

[Kaslin]

With little fanfare and next to no media coverage, an obscure rule change from the Financial Accounting Standards Board (FASB) could lead to big changes for America’s electric grid.

FASB’s proposed changes to federally recognized accounting standards may enable utilities to hide the upfront cost of tens of billions of dollars in bad renewable energy and battery deals, making these projects appear misleadingly profitable on paper through rosy long-term projections of leasing income. These changes will also grease the wheels for regulated utilities to adopt more risky renewable contracts and saddle their customers with the costs.

Ironically, the standards being changed were put into place after the Enron fiasco to improve transparency. And transparency and responsible financial stewardship should be the top priority for regulated utilities with captive ratepayers, and the consequences of obscuring the true and total cost of renewable energy could be severe.

FASB’s loophole will let utilities classify energy storage projects as operating leases instead of sales-type leases, enabling them to spread out the steep upfront cost on their balance sheets and offset them with leasing income. And the data is beginning to roll in showing that these projects are falling well short of their projected performance.

A recent report by kWh Analytics, with support from the Department of Energy and the Solar Energy Industries Association, finds that solar projects are underperforming their expected annual energy output by an average of 5.4 percent. If this trend continues, the report estimates that up to 70 percent of projects with a standard loan could be at risk of default after seven years. The performance of energy storage facilities is even more uncertain because the technologies being deployed are so new.

It is entirely appropriate for private utilities and investors to bear these risks, but regulated utility monopolies must meet a higher standard. If they are allowed to take these projects off their balance sheets and turn them into expenses, it will be easier for them to move these expenses into their rate base and pass them onto their ratepayers.

Hiding the costs of renewable energy and energy storage also makes gambles like the Green New Deal more attractive to politicians seeking to score political points by touting green energy. Unfortunately, as we’ve seen everywhere from California to Germany, these gambles don’t pay off, and the taxpayers end up footing the bill.

Unlike fossil fuels, wind and solar energy are dependent on fickle weather conditions. While oil, gas, and coal power plants can adjust to produce more or less power at any given time, renewable energy produces intermittently and is difficult to store. Battery storage is advancing but remains costly and limited. Even with nationwide battery storage capacity projected to double by 2023, all the batteries in the country by then couldn’t power New York City for a single hour.

All this means that — despite decades of lavish subsidies — wind and solar energy remain prohibitively expensive and still only provide just 4 percent of our energy. We need only look to Georgetown, a suburb of Austin with its own municipal utility, to see what happens when politicians are ignorant of the risks of these projects. After a bad solar deal, Georgetown residents had their rates raised three times in a single year, and the city is scrambling to get out of the contracts that put them $30 million in the hole.

A potentially bigger concern than the financial cost of these investments is the impact on electric reliability if projects do not perform as anticipated. As more cities and states unveil renewable energy mandates, utilities are tasked with the almost impossible responsibility of maintaining a constant power supply while incorporating increasing amounts of unpredictable electricity from wind and solar generators.

Instead of using taxpayer subsidies and accounting gimmicks to prop up unreliable renewable electricity, our leaders must let the free market function and preserve access to the energy that our nation needs to prosper.

[BipolarBob]

Instead of using taxpayer subsidies and accounting gimmicks to prop up unreliable renewable electricity, our leaders must let the free market function and preserve access to the energy that our nation needs to prosper.

Good luck with that in this political/media climate.

[Texas Eagle]

Wow. Something new under the sun.

[redgolum]

I misspent my youth in the alt energy business.

At some point I realized I had a government job with out the benefits.

This isn’t new. My old company went bankrupt because they filled out some grant application wrong after a guy left.

Most power companies view the the renewable stuff as “PR” costs.

[BipolarBob]

You should have started your on company. There's money to be made fleecing doing business with utilities/people in that racket.

[buckalfa]

I know deregulation of the utilities in the early 90’s set the stage for the beginning of America’s current energy independence, but give an MBA an inch, they will create an Enron.

[EEGator]

I work in the electric utility business. (Distribution Design)
Every manager, business analyst and director I know can’t see past the current quarter. Everyone knows the problems that need to be addressed, but they are never spoken about, publicly, or remedied. They are playing a game of musical chairs.

[mac_truck]

Why is the Trump Energy Dept. doing this?

[AZJeep]

“Unfortunately, as we’ve seen everywhere from California to Germany, these gambles don’t pay off, and the taxpayers end up footing the bill.”

---

IEEE magazine (normally big cheer for alt energy), just published an objective article comparing US and Germany.
Electricity cost in Germany is 3x that of the UDA. The Co2 savings are actually almost identical.

I was shocked when Biden mentioned in debate that 50% German power is renewable.
But this article cleared that - Germany has indeed installed renewable power generating capacity equal about 50% of their total generating capacity. So theoretically Biden is correct, but, because renewables are mostly non working, they deliver only about 15% of energy. In Germany solar cells deliver only about 10% of their theoretical capacity (nights, clouds, etc.). Actually in Germany, solar cells are net CONSUMER of energy, if all factors are properly accounted for.

So due to accounting gimmicks, Biden and greens can claim huge German succes, while in reality it is a colossal failure!
Germany green project is such a failure that they cannot even afford to make solar cells in Germany (too much too expensive energy needed) and have to import them from CHina (where they burn the coal). Joke!

[redgolum]

It was explored, but the bribe costs were prohibitive. So they built the solar boilers, solar cells, and biodiesel plants.

What killed them was the grants on the solar boiler.

[chimera]

So theoretically Biden is correct, but, because renewables are mostly non working, they deliver only about 15% of energy. In Germany solar cells deliver only about 10% of their theoretical capacity (nights, clouds, etc.). Actually in Germany, solar cells are net CONSUMER of energy, if all factors are properly accounted for.

This is a game advocates of unreliable (renewable) energy play all the time. They know most people don't know the difference, so they conflate installed capacity with total energy production. So, magically, MW of installed capacity equals MW-hrs of energy production. That assumes a capacity factor of 100%. Solar and wind come nowhere near that. About the closest thing we have to that now of nuclear, which is in the range of 90+% national average.