Postcards: The Suicide Kings of Boston

Today, Scott and I investigated one of the most insane energy policy decisions in U.S. history. This report is the result. We're worried again about what's coming for New England residents in 2025.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: The Suicide Kings of Boston]( Today, Scott and I investigated one of the most insane energy policy decisions in U.S. history. This report is the result. We're worried again about what's coming for New England residents in 2025. [Garrett {NAME}]( Jan 26   [READ IN APP](   Dear Fellow Expat: Last night, I had dinner with commercial real estate agents, energy grid experts, and topography consultants in Maryland. I’m a venture investor in a Swiss-based energy company specializing in Power Storage for renewable energy grids. I’d love to bring our projects to Maryland. Last May, Maryland regulators approved a bill ordering the deployment of 3 gigawatts (GW) or more in energy storage by 2033. That can help power millions of homes and provide ample backup power to data centers and other industries across the state. The group has sizable projects in Denmark, Finland, and other countries. Some are operating facilities. Other larger projects are in the pipeline. There’s plenty of opportunity, and we want to bring power to Maryland - my original home state - dealing with cold weather and snow this week. If there are grid challenges in the future as the state attempts to transition to green energy, I want to ensure my parents aren’t sitting with the lights out in 15-degree weather. I remember something similar happening in 1994 when we lived in Massachusetts during a massive snowstorm that knocked out our power and dumped six feet of snow in a week. It’s good we don’t live in Massachusetts anymore… that state is in real trouble. I warned about a diesel crisis in New England during a 2022 Emergency Town Hall meeting. That crisis in the Northeast sent prices soaring. I’m sure you know that [Porter Stansberry]( wrote about that crisis and discussed it with me on my old financial show, Midday Momentum. But everything we warned about… isn’t even close to as dangerous as what the region faces in the next 12 months. And you can thank the ineptitude of the so-called experts in alternative energy, the hapless regulators, and the lawyers who do their bidding. Massachusetts Mess New England operates on a Byzantine energy system of nine Independent System Operators and hundreds of power sources… from coal power plants to large solar and wind projects. The main power operator is a non-profit Regional Transmission Organization, ISO New England (ISO-NE). This company oversees the region’s bulk electric power system and transmission lines to six states: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. It’s a $7 billion energy grid that requires power from 350 dispatchable companies (with all forms of energy, ranging from carbon-based to solar plants) across more than 9,000 miles of transmission lines. The WBUR authors also write that they must operate all this at 100% reliability at the lowest cost. They ensure the functioning of the power grid and wholesale electricity markets, pulling from 350 power companies and infrastructure operated by names like Brookfield Renewable Energy Group, Constellation, Dominion Resources, FirstLight Power, Granite Shore Power, Great River Hydro, Kleen Energy Systems, LS Power Development, NextEra Energy Resources, and Vistra Energy. And everyone involved is being bludgeoned by regulators, non-profit organizations, and the well-paid lawyers serving them to fuel a “Green Transition” to non-carbon-based fuels. Who needs Congress and laws when the administrative state can enforce its rules and destroy great cities? Who cares if it’s [damn near impossible]( and costly to build new transmission lines to aid the transition in New England. Since states are more interested in feel-good regulations than understanding the sheer scale of what will be needed for the Green Transition… they’re turning to… Where else? The Federal Government - an even more Byzantine, slow-moving system that has only enabled one charging station to come to America 2.5 years after TRILLIONS of dollars came from the passage of the Inflation Reduction Act. It’s absurd. This regulatory chaos and patchwork grid dates back to the Great Northeast Blackout of 1965 - which paralyzed regions from Canada and Northwest New York to parts of Delaware and Maryland. It left 30 million people without power for 13 hours. That figure might top 100 million Americans and Canadians if that happened today. And because of the stupidity of the regulators and market operators - it will quickly happen again. Here’s why… New England’s energy grid moved to a “Pay for Performance” model in the last few years. [WBUR in Boston covered this in 2019](. According to their report, this is dubbed a “market-based system” that rewards efficiency in power generation but hammers power companies if they fail to execute. This was a big change from a previous program that only hit producers with small fines if they could not deliver. WBUR notes that if a company says it will produce power but fails to deliver, it can cost them millions. Of course, it’s more questionably punitive than rewarding. If a transmission line goes down or a substation goes out of whack, the company faces penalties (even if it doesn’t own either). Suppose the grid operators screw up and incorrectly forecast expected demand during periods of extreme heat or cold. In that case, the producers are still held responsible under this rule, according to Dan Dolan, president of the New England Power Generators Association, via WBUR. This pay-for-performance model has struggled. For example, the grid was strained during a hot, humid Labor Day weekend a few years ago. That was because ISO-New England failed to properly forecast demand for the weather because their model didn’t likely take into account extreme weather events. During a hot Labor Day, they missed the forecast by 15%, according to Dolan in his interview with WBUR. As a result, they had 15% fewer plants running. Oops. After this happened, ISO scrambled for power. They turned around and slapped the first-ever Pay for Performance fine against the Mystic Generating Station in Everett, Massachusetts. - the region’s largest power facility with 1,413 MW in capacity. At the time, the facility struggled to secure LNG from its sister energy terminal. When slapped with the fine - Constellation, the plant’s owner and operator, said they couldn’t compete and would like to either compete outside the current Pay for Performance market… or shut down both the plant and the LNG facility. What happened next is stupid. Let’s Get Dumber The Northeastern part of the United States runs heavily on heating oil and natural gas. However, it needs a more suitable pipeline capacity to bring fuel from the south. Therefore, it relies on a LOT of imports and Jones Act-compliant ships to get fuel into the region. But the state of Massachusetts - where the average temperature at night in January is 22 degrees Fahrenheit - [is moving to ban natural gas appliances]( new construction. That means more reliance on electric stoves and furnaces - at a time when they are doing their best to move away from cheap, abundant natural gas. [In December]( state utility regulators created a massive framework to slash natural gas use for heating. Because of the climate, you see. They want more solar, wind, and other alternative energy sources. They have a long way to go, considering they use a lot of natural gas and have to import electricity from other states. The chart below from the Energy Information Administration shows that they burn a lot of natural gas. According to the U.S. Census, natural gas heats 51% of Massachusetts homes… roughly 1.4 million. (Kerosene and heating oil are the second and third largest sources of home heating, at 24% of households.) Under Massachusetts’ recent ruling, natural gas utility companies must give the state a report every five years showing how they’re moving away from natural gas and what alternatives they will use. They must ensure that the state reaches net-zero carbon by 2050. However, those new alternative energy sources can’t be “renewable natural gas” and hydrogen because the Massachusetts Department of Public Utilities rejected the utility companies' offer to use them. Does that make sense? This whole plan is the equivalent of asking someone to offer a plan on how they will go bankrupt every five years until they’ve fully committed suicide within 25. But it gets WORSE. As they shut down natural gas and make compliance more costly for existing plants, the transition isn’t happening fast enough… and companies are walking away. First, Constellation sold the Mystic Generating Station for $25 million to Wynn Development, which owns Boston Harbor Casino. We’re talking a complete teardown, with critical power to the region replaced by slot machines (although how do they plan to power them?). Then, Constellation Energy argued it would have to shut down its Everett Marine Terminal (EMT) for LNG importing if it couldn’t find a replacement gas purchaser from the Mystic Plant. They can’t find a buyer yet… And why would there be a long-term buyer - given that Massachusetts regulations are turning the screws on natural gas use. The shutdown is planned for May unless it’s somehow kept open by Federal regulators. So, the New England area could lose one of its three operating liquefied natural gas (LNG) facilities based on “climate” models and weather predictions from the Electric Power Research Institute. This LNG plant is so critical to the Northeast that 99% of all U.S. LNG imports run through it. Since they can’t produce LNG up there… the region has to import it from other nations - and it’s all we bring into our borders. In addition to supplying Mystic Station, this LNG plant connects to the Tennessee Gas Pipeline (TGP) and Algonquin Gas Transmission gas transmission systems. It provides about 12,000 MW of power to homes, universities, and companies. It plays a major role in delivering reserve power for entities like Biogen, Novartis, Pfizer, Harvard University, MIT, Tufts University, and Mass General Brigham Healthcare System.  And it will soon shut down because of a state-induced mess. So What Happened? In 2018, Constellation announced plans to close Mystic Power Station due to economic challenges. But later that year, the Federal Energy Regulatory Commission, which oversees the interstate electricity market and national electricity standards, allowed the company to bill a subsidy to prevent it from shutting down. Ratepayers provided that subsidy. FERC approved that request from ISO New England, which was concerned about the grid's strength and the power supply to Boston. In 2020, the U.S. Court of Appeals for the District of Columbia Circuit decided this deal shouldn’t have happened. The court said that FERC acted “arbitrarily and capriciously” when it had ratepayers cover Everett's operating costs. On December 21, 2020, FERC modified its previous cost-of-service compensation. This allowed Constellation Mystic Power to operate two natural gas facilities sourced by their affiliate, Everett Marine Terminal. But the plant announced it would shut down by 2024 when its fee agreements of Mystic’s power station ended, as they weren’t economically feasible. That process was expedited when ISO-New England later told FERC in 2023 that this plant wasn’t necessary to prevent blackouts across the Boston region. Regulators, Green industry advocates, and environmental lawyers effectively argued that home solar panels, a massive offshore wind project off the shore of Nantucket, and hydropower from Canada and Maine would shore up that demand based on their models. But - here’s the real kicker. [ISO-New England analyzed]( how much power it will need in 2024 and 2025. The analysis suggests that “the region’s electricity system can withstand the retirement of the EMT if oil or dual-fuel generators have sufficient oil supplies and gas generators are able to secure LNG from other suppliers.” Those suppliers include imports from Canada or another LNG facility nearby. But… from their May 2023 analysis - there’s a footnote. “The analysis does not model extreme situations with a very low probability of occurring,” they wrote. So, statistical anomalies or Black Swans (which occur more than people think) are not part of the risk model. Here’s the irony of this. They aren’t doing the basic statistical analysis required for extreme weather events - when the entire hysteria around climate change is typically based on the most extreme weather scenarios in the models. Remember, according to his preferred climate models, Al Gore said that Florida would be underwater by now. This failure to model extreme events is what worsened the 2008 financial crisis. Of course, no one died of extreme cold weather because the banks failed. But these forecasters are not focused on winter storms like 2022’s Winter Storm Elliot or the polar vortex that just hammered the central part of the United States. Here, they’re playing with people’s lives. Digging the grid operator’s modeling, we return to WBUR’s analysis—emphasis mine. “While the ISO’s previous model essentially predicted whether there’d be enough electricity under a few cold-weather scenarios, the new tool does a better job of taking into account intermittent renewable energy sources, grid officials said. For example, a really cold day may not stress the system like it did in the past if the sun is shining bright and the wind is blowing strong.” If the sun is shining bright… and the wind is blowing strong, it may not stress the system. “May not…” I ask… With how much statistical confidence do you make this statement? Trust the experts… right? Worse yet - their entire modeling also assumes it can rely on other gas-fired power plants when demand spikes - but regulatory costs and hostile politicians are driving away LNG plants with the same sort of enthusiasm that they have with coal-fired plants and refineries. WORST yet - the operator admits that it “does not have expertise on the gas system and, therefore, the local gas companies and pipeline operators will need to identify any operational concerns for their systems resulting from the potential closure of the Everett facility.” They’re not thinking at all about the impact on the Everett facility that hasn’t been able to find a replacement buyer and who will kick into the pipelines. Therefore, their analysis - critical to millions' survival - is incomplete. Is that why FERC has issued statements worried about the stability of natural gas sources in Boston and the surrounding region? Last year, FERC Chairman Willie Phillips and North American Electric Reliability Corporation (NERC) CEO James Robb [warned that shutting down the gas terminal]( hurt the “reliability and affordability of the region’s energy supplies” during winter.” No kidding.  What’s the Solution? In 2023, ISO New England - which provides about 25% of Boston's electricity from its grid- asked Boston Gas what it would need to replace the Everett natural gas facility properly. Here’s what Boston Gas replied: For the Company to replicate the ga LNG plant in Everett with a similar function to Constellation. To provide the same reliability to National Grid, the facility would need: to be located within the vicinity of the Everett facility; be interconnected into the National Grid, AGT and TGP systems with high volume sendout capability; have significant onsite storage; and have established refill capability (e.g., import, liquefaction, trucking). This would provide for supplemental gas to support all National Grid facilities currently benefitting from the plant today. A scaled down version of the plant with injections into the National Grid system alone would provide for more limited reliability benefits. These benefits would be realized primarily by those National Grid systems and stations directly supplied via Everett and not the majority of the Company’s stations fed off the pipeline laterals. This was all a nice way of saying - please just build a replica of the Everett Facility on top of the existing Everett Facility, you complete morons. We are witnessing a failure of genius once again, statisticians believing their own religion, regulators playing God, and the belief that Gaia will reward us with no extreme weather if we take down the power plants. That “the sun will always shine and the wind will always blow” - and if we can destroy one of human history's most reliable and portable forms of energy. As I’ve noted, it doesn’t take a lot of land to generate significant power from natural gas. [It takes an incredible amount of land from solar and wind]( which can’t provide power 24 hours per day. I reminded my group last night at dinner that this is why any state with aggressive net-zero carbon plans will require massive amounts of battery storage. And that level of scale is something [regulators still need to visualize](. Beware of meeting any of the people involved in this ongoing Boston debacle. You might find that some of them are part of the Death Cult from Wicker Man. Looking ahead, there will be challenges to the New England Energy system. An extreme weather event will do incredible damage, economically. And when it happens, I guarantee that the Death Cult will scream that we need to expedite the Green Transition instead of going back to natural gas. “Forward,” they’ll scream, heading toward a cliff. We’ll continue to cover this story over the years. We continue to trade refineries in positive energy signal conditions like HF Sinclair (DINO) and Valero (VLO). We’ll also discuss companies like Brookfield Renewable Partners (BEP). It’s going to be a wild decade. Thank goodness we have a sane energy policy in the Florida Republic. Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()