Thanks to everyone who subscribes! We made it to 200 and as promised, I have a fun picture.
That’s fireworks at the end of a Durham Bulls game. If you look closely, you can see two massive solar arrays on the building behind right field, so I’m staying on brand here. The flames shooting out of the fireworks box are also pretty cool.
I have an exciting new project I’m working on for several weeks, so I’m back to only a weekly post on Tuesdays. I plan to give more news once I have completed the prototype. Now let’s talk about monopoly dynamics!
Monopoly growth
They say that in the short run the stock market is a voting machine, in the long run, it is a weighing machine. With this sentiment in mind, I was taken aback by this tweet that the utilities sector has the third-highest growth rate in 2024. I headed over to Fidelity’s website to investigate further:
Electricity utilities look great, but the flatness of the gas utilities, especially compared to renewable and independent power producers stood out to me. Utility stock prices should be expected to grow slowly and throw off fixed returns given they are generally attached to regulated monopolies. The market is saying that renewables are volatile, electricity is growing, and gas has nothing exciting happening.
Here are the top 12 US utility companies by market cap ($30B market cap and higher as of 6/10)
NextEra Energy (NEE)
Duke Energy (DUK)
Southern Company (SO)
Dominion Energy (D)
Sempra (SRE)
American Electric Power (AEP)
Exelon (EXC)
PG&E (PCG)
Constellation Energy Group (CEG)
Public Service Enterprise Group INC (PEG)
Consolidated Edison (ED)
XCEL Energy (XEL)
Each of these companies holds both electricity and gas utility operations and operates in regulated monopoly service areas. I had no idea! Gas and electricity have a unique relationship among the services utilities provide. Cooking, space heating, and water heating can all be done with either gas or electricity in homes and businesses. It comes down to tradeoffs related to upfront costs, outside temperatures, and ventilation requirements. Gas can also be used to generate electricity. If you are a gas business that can’t serve customers directly for some reason, you can try to pitch serving a power plant and still sell your product. This is a conflict of interest for a monopoly with multiple options for generating electricity but a bias toward choosing gas every time to support other parts of their business.
Florida man burns gas
I was confused when I broke down the electricity generation mix by region a few weeks ago and Florida showed a huge preference for burning gas to make electricity.
There’s no natural gas in Florida. Gas comes to Florida by pipeline from mostly Texas and Louisiana and those places aren’t geographically sensible.
The geography of Florida makes it challenging to transport gas. This results in only two pipelines that make their way into Florida to generate around 75% of the state’s electricity. The Miami area only has one pipeline because of geographic limitations caused by the Everglades. One of the most populated areas in the US is powered by a single gas pipeline. There are two nuclear power plants, one to the north and one to the south of the area to help critical infrastructure online if there’s a pipeline failure. That’s not a huge comfort if I’m a citizen of an area routinely battered by hurricanes.
A more resilient choice for Florida would have been to build out solar and offshore wind resources. These are now starting to enter the discussion with Florida being one of the top utility-scale solar installers in the country. However, NextEra Energy holds a monopoly on both gas and electricity in much of the state. Where they don’t, Duke Energy operates and has similar incentives. With little market for space heating, the only way to justify building gas infrastructure pipelines is to claim solar (in the Sunshine State) is not a suitable power solution. Contrast that with NextEra choosing to divest from their gas holdings in Texas, where deregulation has already started to bring wind and solar en masse to the electric grid. This is a sign that holding both gas and electricity monopolies in Florida has resulted in a poor market outcome.
Congratulations on the growth!