Editorial: Another central planner project goes bust

Central planners always think they can design a better consumer product and achieve a better economic outcome than the invisible hand of the free market can. F.A. Hayek called this The Fatal Conceit.

Another of the products of the central planners is on its death bed.

Back in 2011 a company called Solar Reserve announced it was building a $1 billion solar powered electricity generating project near Tonopah called Crescent Dunes. President Obama’s Department of Energy backed the project with a $737 million federal loan guarantee.

The 110-megawatt solar thermal facility used thousands of mirrors to focus sunlight on a tower containing salt. The heat of the sun melted the salt which was used to turn water into steam, which in turn drove turbines that generated power.

The designers claimed the molten salt would retain heat and enable the facility to continue to generate power up to 10 hours without sunlight, unlike photovoltaic solar panels or solar thermal generators using only water. It was the first of its kind.

Crescent Dunes power plant

According to recent news accounts, the project is on the verge of bankruptcy and its sole customer, NV Energy, has canceled its contract, which was to run through 2040. The power company cited the inability of the facility to meet contracted generating capacity.

Since going online in 2015 the project has experienced mechanical failures, including being offline for eight months due to a leak in a molten salt tank. According to an account by the Las Vegas newspaper, in the past year the plant was able to produce only 50 percent of the contracted power amount and was projected to fall 25 percent short in 2020 and beyond.

What the various press accounts failed to note is that the Crescent Dunes contract with NV Energy negotiated in 2011 called for a beginning wholesale purchase price of 13.5 cents per kilowatt-hour, increasing by 1 percent each year. At the time, NV Energy was selling retail residential power for 11.6 cents per kWh. In the past year, the company has been contracting for renewable energy at wholesale rates less than 4 and even 3 cents per kWh.

Taxpayers picked up construction costs and ratepayers followed suit.

Expect more such boondoggles from the central planners. A year ago, Nevada voters approved a constitutional amendment requiring 50 percent of the state’s electricity come from renewable sources such as solar and wind by 2030. In the legislative session this past spring lawmakers in Carson City went ahead and made that proposition law immediately.

Such market manipulation drives up the cost and retards real innovation.

By the time that constitutional amendment is on the ballot again in a year, we call on the the voters to wise up as to who is footing the bill and demand our lawmakers also relent.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Ignorance may be bliss, but it cannot prevent the inevitable collapse

An actual ad encouraging young adults to get health insurance. (doyougotinsurance.com)

How in the world can anyone expect that a majority of an increasingly degenerate people accustomed to the “right” to vote should ever voluntarily renounce the opportunity of looting other people’s property? Put this way, one must admit that the prospect of a social revolution must indeed be regarded as virtually nil. Rather, it is only on second thought, upon regarding secession as an integral part of any bottom-up strategy, that the task of a liberal-libertarian revolution appears less than impossible, even if it still remains a daunting one. — Former UNLV economics professor Hans-Herman Hoppe, “Democracy: The God That Failed

Thomas Sowell questions why so many uninformed but potential voters seem willing, after six years of domestic and international disasters coming from Washington, “under a glib egomaniac in the White House, so many potential voters are turning to another glib egomaniac to be his successor” — Donald Trump to be specific.

Sowell concludes in his Inverstor’s Business Daily op-ed that the problem lies in the voters themselves. “All too many signs point to an electorate including many people who are grossly uninformed or, worse yet, misinformed,” he writes. “The very fact that the voting age was lowered to 18 shows the triumph of the vision of elections as participatory rituals, rather than times for fateful choices. If anything, the age might have been raised to 30, since today millions of people in their 20s have never even had the responsibility of being self-supporting, to give them some sense of reality.”

Which brings us to the central planners who are trying to tap that youthful contingent to support ObamaCare.

As David Hebert notes in an IBD piece today the viability of ObamaCare hinges on the unemployable subsidizing the uninsurable.

Numbers don’t work, but no one can do the math. Hebert points out that the projected 35 million enrollees is really only 16.2 million. For the program to be sustainable 40 percent of the enrollees need to be healthy people between the ages of 18 and 34, who incur lower costs. But his age group makes up only 24 percent of enrollees and has an unemployment rate of 8.2 percent.

This amounts to redistribution from the younger to the older. But since the younger people aren’t signing up, the premium rates keep climbing and the ObamaCare co-ops, despite being buoyed by federal grants and loans, are failing.

But younger folks don’t see it. According to a recent survey, voters 18 to 34 in age favor ObamaCare by 52 to 41 percent. “And they are indeed alone in that evaluation. Seniors, the main group that actually uses rather than simply theorizes about health care, strongly oppose it by 65 to 31 percent – more than 2-to-1 in several polls – and all adults over 50 oppose ObamaCare almost as strongly, by 57 to 37 percent,” according to Forbes article.

At least before the obvious economic failure of Eastern European socialism, it was widely thought by such rationalists that a centrally planned economy would deliver not only `social justice’ (see chapter seven below), but also a more efficient use of economic resources. This notion appears eminently sensible at first glance. But it proves to overlook the facts just reviewed: that the totality of resources that one could employ in such a plan is simply not knowable to anybody, and therefore can hardly be centrally controlled. — F.A. Hayek, “The Fatal Conceit

Befuddled bureaucrats trying to play God with our money

“Seest thou a man wise in his own conceit? There is more hope of a fool than of him.”

Proverbs 26:12

Economist F.A. Hayek called the efforts of central planners to create a more efficient economy than the free market could: “The Fatal Conceit.”

So perhaps the efforts of federal bureaucrats to better control nature than nature can should be called: “The Futile Conceit.” They are bound and determined to play God if it costs the last shekel of our money.

Nevada may well be the laboratory or the crucible in which the futility of this experiment is proven.

Federal agencies have spent untold millions in taxes and fees extorted from land developers trying to keep the desert tortoise from becoming extinct, only to recently announce a sterilization program because there are too many in backyards. And of course the 20-year-old, 220-acre Desert Tortoise Conservation Center will close at the end of the year, when its funding runs out.

Mulitmillion-dollar minnow being “preserved” in a $4.5 million aquarium. (R-J photo)

Meanwhile, researchers admit they have no idea how many desert tortoises there were in the wild 20 years ago when they were declared “threatened” nor how many there are now or what the proper, sustainable population should be.

In 2008, when 770 desert tortoises from Fort Irwin were released into the open desert in California, the project was promptly suspended because 90 percent of the transplants were devoured by predators, mostly ravens.

Speaking of ravens, it should be noted that these same federal agencies are hell bent to preserve the greater sage grouse — by shutting down economic activity such as mining, drilling, farming and ranching — while at the same time its principle predator, the raven, is protected by a migratory bird treaty.

Then there was the plan to increase the population of wild turkeys in Great Basin National Park. The birds — with few natural predators and hunting disallowed in the park — have taken over the Lehman Caves Visitor Center, roosting in trees at the center’s entrance, befouling lawn and sidewalks with copious droppings.

“Wild” horses being preserved in pens. (Photo by Jo Mitchell)

As for wild horses, there are now more being held in holding pens around the country than in the wild, and those in the wild are so overpopulated that they are stressing the water and grazing availability.

Then there is the granddaddy of species preservation conceit, the champion of profligate expenditures: The Devil’s Hole pupfish preserve in Amargosa Valley, which were placed on the endangered species list in 1967.

Its pond is surrounded by a chain link fence topped with barbed wire, surrounded by cameras and alarms, linked by microwave to security 24 hours a day, seven days a week.

After spending millions of dollars in a futile attempt to preserve this iridescent minnow, the population has fallen to less than 100. So, sort of like the wild horses, the federal government built a $4.5 million, 100,000-gallon aquarium that mimics the temperature and all aspects of the tiny Devil’s Hole.

Like the horses, pupfish are being reserved by removal from their natural habitats.

They could more cheaply seine out a couple dozen minnows and ship them to an aquarium and let the remainder fend for themselves in what we like to call “nature,” where some species are fit enough to survive and others are not, through no fault of mankind.

Our representatives in Washington should turn off the spigot of our money being wasted on futile efforts by bureaucrats to play God.

People don’t shape their government, their government shapes them

How did Barack Obama get re-elected? Perhaps the following excerpt from F.A. Hayek’s preface to the 1956 American edition of “Road to Serfdom” can offer a glimmer of explanation:

Of course, six years of socialist government in England have not produced anything resembling a totalitarian state. But those who argue that this has disproved the thesis of The Road to Serfdom have really missed one of its main points: that the most important change which extensive government control produces is a psychological change, an alteration in the character of the people.

This is necessarily a slow affair, a process which extends not over a few years but perhaps over one or two generations.

The important point is that the political ideals of a people and its attitude toward authority are as much the effect as the cause of the political institutions under which it lives.

This means, among other things, that even a strong tradition of political liberty is no safeguard if the danger is precisely that new institutions and policies will gradually undermine and destroy that spirit.

The consequences can of course be averted if that spirit reasserts itself in time and the people not only throw out the party which has been leading them further and further in the dangerous direction but also recognize the nature of the danger and resolutely change their course. There is not yet much ground to believe that the latter has happened in England.

Yet the change undergone by the character of the British people, not merely under its Labour government but in the course of the much longer period during which it has been enjoying the blessings of a paternalistic welfare state, can hardly be mistaken. These changes are not easily demonstrated but are clearly felt if one lives in the country.

In Illustration, I will cite a few significant passages from a sociological survey dealing with the impact of the surfeit of regulation on the mental attitudes of the young. It is concerned with the situation before the Labour government came into power, in fact, about the time this book was first published, and deals mainly with the effects of those war regulations which the Labour government made permanent:

It is above all in the city that the province of the optional felt as dwindling away to nothing. At school, in the place of irk, on the journey to and fro, even in the very equipment A provisioning of the home, many of the activities normally possible to human beings are either forbidden or enjoined. special agencies, called Citizen’s Advice Bureaus, are set up to steer the bewildered through the forest of rules, and to indicate to the persistent the rare clearings where a private person may still make a choice ….

Is it too pessimistic to fear that a generation grown up under these conditions is unlikely to throw off the fetters to which it has grown used? Or does this description not rather fully bear out De Tocqueville’s prediction of the “new kind of servitude” when

after having thus successively taken each member of the community in its powerful grasp, and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd. The will of man is not shattered but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrial animals, of which government is the shepherd. I have always thought that servitude of the regular, quiet, and gentle kind which I have just described might be combined more easily than is commonly believed with some of the outward forms of freedom and that it might even establish itself under the wing of the sovereignty of the people.

What De Tocqueville did not consider was how long such a government would remain in the hands of benevolent despots when it would be so much more easy for any group of ruffians to keep itself indefinitely in power by disregarding all the traditional decencies of political life.

Perhaps I should also remind the reader that I have never accused the socialist parties of deliberately aiming at a totalitarian regime or even suspected that the leaders of the old socialist movements might ever show such inclinations.

What I have argued in this book, and what the British experience convinces me even more to be true, is that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand.

Be cautious with plan to scrap coal and generate electricity with natural gas and ‘green’ energy

Calculating that Obama administration bureaucrats and Washington elected officials will sooner or later ratchet up regulations and legislation that will make the operation of coal-fired power plants prohibitively expensive, executives at NV Energy have decided to bailout early on its remaining coal operations.

This would entail shutting down generating units years ahead of schedule at the Reid Gardner power plant near the Moapa Indian reservation in northern Clark County and the North Valmy power plant between Winnemucca and Battle Mountain. The company also would end some power purchase contracts.

To replace these, the company plans to build 2,000 megawatts of natural gas-fired power plants as well as 150 megawatts of renewable energy — which could include wind, solar, geothermal or biomass — and contract out for another 450 megawatts of “green” power.

Reid Gardner power plant. (Sun photo)

To cut its risks and cover its assets the company has submitted Senate Bill 123 to the state Legislature. The bill would saddle the ratepayers with every dime of the cost of the decision to mothball the coal plants early — including any undepreciated balance, decommissioning and remediation, contract termination costs and even the value of any unused coal left lying around.

In testimony to a state Senate committee, company spokesman Pete Ernaut estimated the plan, which carries the cute title of NVision, would add no more than 4 percent to power bills over the next 20 years. Instead of rising by 32 percent in that timeframe, as current cost projections indicate, rates would climb 36 percent, plus inflation. Such long-term projections are tenuous at best and rely on myriad assumptions.

All those new power plants would result in 4,800 construction jobs at one time or the other over the coming years and a couple of hundred permanent jobs, Ernaut said. That hardly puts a dent in Nevada’s 132,000 unemployed workers.

You could almost hear the patriotic Sousa music in the background as Ernaut evangelized, “The plan represents a significant environmental statement. It creates a robust industry of renewable energy. It makes available renewable energy built in Nevada for Nevadans and by Nevadans. And, again, it’s hopefully a very bold step in the total energy independence for our state.”

One small improvement to SB123 from the way it was originally introduced is that a section that would have made “green” energy contract pricing information a trade secret has been deleted.

While the impact on ratepayers appears relatively minor, left unsaid was what the impact of adding 600 megawatts of renewable power might have on federal, state and local taxes.

SB123 takes nearly $300 million of ratepayer money and gives it those who build solar and wind generating facilities at homes, businesses and government agencies, covering as much as 50 percent of the cost of construction. In some cases a federal grant would cover about 30 percent of cost of such solar panel installations. It is unclear whether one could qualify for both handouts.

Additionally, smaller solar panel projects are exempt from both sales and property taxes.

Larger facilities are eligible for various tax abatements, too, as well as millions in federal Energy Department grants and production tax credits. Larger utility-scale wind and solar projects are slated to be built on federally controlled public land that will be provided to the builders at pennies on the dollar instead of being sold at market value, another cost to the taxpayers.

Such hidden costs are not so easily rounded up and quantified.

Additionally, some are already warning that California, which also relies heavily on renewable energy for its power supply, could face spiking electricity prices and rolling “green-outs” when the summer heat arrives this year.

Once these renewable energy projects are built the price per kilowatt-hour of electricity will be locked in with 20-year contracts with annual price increases, no matter what happens to the price of natural gas or coal or even whether someone actually builds John Galt’s engine that runs off static electricity, as envisioned (pun intended) in Ayn Rand’s novel “Atlas Shrugged.”

The “levelized” cost of power, which includes penalizing fossil-fuel sources for greenhouse gas output, of different sources of electricity in the year 2016, predicts the U.S. Energy Information Administration, should be: coal 10 cents a kilowatt-hour, gas 6.5 cents, nuclear 11 cents, wind 10 cents, solar photovoltaic 21 cents, solar thermal 32 cents, geothermal 10 cents and biomass 11 cents.

But no one predicted the price of natural gas sold to power plants would fall from $9.26 per thousand cubic feet in 2008 to $3.52 in 2012.

According to calculations provided to Public Utilities Commission commissioners at a recent meeting, various renewable energy and power efficiency programs dictated by law already account for nearly 12 percent of the cost of electricity in northern Nevada and about 8 percent in southern Nevada. The company also projects that it will sell 2.1 percent less power in 2013 than in 2012.

Another concern was expressed to the Senate committee by Dan Jacobsen of the attorney general’s Bureau of Consumer Protection, which represents ratepayer interests at the PUC, which regulates NV Energy’s rates and energy planning. He said, “In addition to replacing about 1,000 megawatts of coal capacity, the bill also would be replacing a very large amount of power purchase agreements right now that ratepayers don’t have to provide a return on.”

NV Energy’s profits come from a rate of return on equity, which is currently about 10 percent, but the more equity in power plants, power lines and gas pipelines the greater the return.

“There are power purchase agreements that are pretty helpful in covering peak load but not having to be purchased at times when there isn’t a peak load,” Jacobsen noted. “That’s a pretty good mix at times for Nevada with extreme heat in the summer that doesn’t last more than about three months.”

Then Jacobsen addressed the most glaring flaw in the bill: It’s decades-long, Soviet-style central planning. “I hope you have an appreciation for the difficult, long-range  decision you are being asked to make in this bill,” Jacobsen said. “Step back and think about it for a minute, you’re being asked right now, based on information you have right now, to make a decision that, for example, in the year 2025 the right thing to do is to build a 500-megawatt natural gas plant.

“That’s 12 years from now. Technology can change a lot in 12 years. The demand projection can change a lot. The wholesale market can change a lot. Efficiency options can change a lot. But this bill says to you: Please mandate the right thing to do 12 years from now is to build a 500-megawatt natural gas plant. That’s quite a challenge for you as a policy makers to make.”

The consumer advocate also noted that some of the language in the bill would tie the hands of the PUC commissioners. One part dictates the “Commission shall approve” costs and emissions reduction “shall be deemed to be a prudent investment. The electric utility may recover all just and reasonable costs …”

Jacobsen commented, “That phrase ‘deemed prudent’ carries a lot of legal weight with it.”

The bill also would allow NV Energy to immediately increase rates once a new power plant goes online, and the PUC could later review the rates and could roll them back if excessive.

The last time the power company was given carte blanche to build power plants and begin to recover costs immediately, even before any review by state regulators, was in the 1980s. That was because the company needed new power supplies — from coal-fired plants.

F.A. Hayek wrote in “Fatal Conceit”:

“At least before the obvious economic failure of Eastern European socialism, it was widely thought by such rationalists that a centrally planned economy would deliver not only `social justice,’ but also a more efficient use of economic resources. This notion appears eminently sensible at first glance. But it proves to overlook the facts …: that the totality of resources that one could employ in such a plan is simply not knowable to anybody, and therefore can hardly be centrally controlled.”

%d bloggers like this: