Thursday, November 12, 2009

Moving to

After a few months absence from the Create Energy Solutions due to my hectic private life (i.e. birth of our son) my schedule is now getting back on track. So I have the time to devote again to blogging about energy in the SEE and CEE regions. However, this time I would like to take a slightly different tact and launch a website that has more diverse opinions and facts than those presented by just me. Therefore, you can find me and whoever wants to join me, over at the The site is still in pre-beta form but I've restarted the blogging over there. So excuse the mess.

The aim of the new website is to serve as a basis for greater distribution of research, analysis and news focused on the SEE and CEE regions. And importantly express opinions of those people who are active in the region. But let's see where this all leads.

Kind regards,

Michael LaBelle

Friday, July 17, 2009


Tuesday, July 14, 2009

Emfesz and the Spider's web

To update you on the situation of Emfesz (the Hungarian gas provider and frequently remarked upon company) and the murky world of its operations in Hungary, I would suggest you check out this post on the Jamestown Foundation's website. The deal involves a $1.00 transfer of the company in Switzerland, $1 billion fraud and notably famous Russians like Alexander Medvedev and the Kremlin PR machine. While the story itself is noteworthy of underworld business dealings, and whether correct or not I don't know, but the results appear to be that Gazprom now holds a 20% share in the retail gas market in Hungary.

This later point is particularly important and needs a few remarks. If we go on the assumption that at least some parts of this story are true, then that would mean that at least people in Russia know where Hungary is and that very important people in Russia are interested in Hungary. Ok, a basic premises, but something that is important to establish before going foreword. My second point is that this lends credibility to the idea that there is a concerted effort by the Russian government and Russian companies to involve themselves in the downstream business affairs of the Hungarian retail market.

And why is this important to establish and hasn't it been obvious in the past? You may remark. The point is that while Russia and Russian associates bumble around and leave bread crumb trails to track their moves, if a concerted strategy can be detected from multiple events then we can begin to talk of a concerted Russian strategy to control downstream retail assets of energy companies.

The detection of a concerted Russian state and private strategy is important because then we are not relying solely on rumors of who owns Surgutneft (SNG's attempt to take over MOL) for example. Therefore if Gazprom, or some company closely associated with it, owns Emfesz now with 20% of the Hungarian gas market, then dramatic inroads have been in Hungary's newly opened competitive gas market. And competitive it may be, Gazprom's entrance into the UK market resulted in competition occurring and customers switching. We'll have to wait to see what the prices will be on offer. This should be shown in the near furture. In the more distant future is the ownership stakes Russian oil and gas companies will have in Hungary and whether they are taken over through similar tactics.

Wednesday, July 8, 2009

Are we Going the Wrong Way with Climate Policy?

If you are like me and are paying some attention to the climate bill debate in the US and around the world, then maybe you've also thought something is not right. Mainly the right part not actually solving any of our problems in greenhouse gas emissions.

Out now is a thoughtful report published by 13 academics about the need to change tack on the current policy of cap and trade. It focuses on carbon reduction as a means to achieve our aims.

For me this makes sense. It is actually a large part of what my current research is focused on, the role out of alternative energy sources to reduction carbon emissions in a future carbon free world. This EU Commission study, is therefore centred around the issue of carbon reduction not emmission reductions. Which of course holds some overlap. But I would suggest to read the report for more.

Friday, July 3, 2009

Africa begins turning Europe Green

I have been waiting for this:

Twenty blue chip German companies are pooling their resources with the aim of harnessing solar power in the deserts of north Africa and transporting the clean electricity to Europe.

The businesses, which include some of the biggest names in European energy, finance and manufacturing, will form a consortium next month. If successful, the highly ambitious plan could see Europe fuelled by solar energy within a decade (link to news story).

This is an important project that may turn out with similar risks as buying gas from Russia, it may reduce Europe's security of supply rather than boost it. And in some ways importing primary electricity from so far away may threaten the ability for Europe to handle its peak load.

I don't want to be a party crasher on this, and I'm not even going to talk about the technical requirements for the project, but my assessment comes out of my research into Europe's energy security of supply. But I hope I'm wrong here, or at least there are ways to mitigate the risks involved.

The main risk that is inherit in this project is the production and transfer of electricity from outside the EU and through some politically or potentially politically unstable countries. It is reported that Morocco, Libya and Algeria will be used as production sites. First, will the electricity go around through the planned North Africa/Mediterranean electricity grid or will it go under the Mediterranean? Now what is interesting the consortium is being lead by Munich Re, a reinsurer. Therefore, you would think that the risk premium attached to this project would be low - or at least it is certainly being taken into account in the price of €400 billion. And interestingly enough, the company says it is taking this step because of the mounting cost of global warming. Therefore you have the convergence of two risk premiums coming together, with the distant energy source having a lower rating. This may become a case of low risk premiums being priced into the price of electricity UNTIL the electricity is turned off, then it increases. Think oil and gas -oil the risk premium fluctuates daily, while gas only changes when it is turned off.

The projection of the project is that this can provide 15% of Europe's electricity requirements. This is certainly a sizable amount, but what must be asked is what percentage will need to be kept in reserve in case some or all of this electricity is turned off? Just as gas storage is seen as a way to buffer against supply disruptions, so to does electricity that is being used daily from North Africa need to have some type of reserve requirement.

This very project of importing solar electricity from North Africa is actually part of a question I'm currently asking people for a project. Most have said, yes it would be a good thing to bring more green energy into the electricity mix, but most have express reservation based on the security of supply. They equate it to importing gas from Russia. It should work great when it does work, but prepare for those rainy days which even the Sahara receives.

Thursday, June 18, 2009

No Pain Today, No Pain for Tommorow's Gas

Covering your financial shortfalls with a loan, or with your credit card, or to make you more popular is a trick that even households use. The government of Hungary in the fall of 2008 deferred raising the gas price to reflect the international rise in price. This resulted in E.ON striking an agreement with the government that the price difference would be paid back in the future on loan-like terms. Well the bill has come due, and the overall price has dropped. While I pointed out earlier Romania has dropped their gas prices by 33%, Hungary says it will drop gas prices but it will also be placing a special charge on gas to cover the repayment, as reported by IntelliNews - Hungary Today .

The government continued to plan a reduction of retail gas prices from the beginning of October, the state secretary of the energy ministry, Lajos Olah, announced. He pointed out that these plans should not be affected by the commitment to compensate gas utility E.On. The volume of the compensation amounted to HUF 60bn (EUR 215.2mn) and should be made till the end of 2010. Financing of the payment would come from a special item in the gas price but Olah reiterated that this special item would not put pressure on gas prices since it would be offset by an import price-correcting factor.

What can be learned from this? Sometimes you get lucky, if the price of gas had not fallen then consumers would have been stuck with an even higher bill, but in this case, a few million euros worth of a 'loan' forced on a company have paid off. If consumer's bills don't increase, they won't notice that -again- they are paying more than they should.

Friday, June 12, 2009

Go into Debt and Save on Your Gas Bill

In an era where credit cards are quickly going out of fashion we have the launch of a new 'money saving' credit card (in case you didn't know, debit cards are the new black -at least in America) . Budapest Bank and Fogaz have teamed up to co-brand a credit card that allows the average customer to save up to HUF 13,200 (EUR 47.12 USD 65.88) a year through a 6% discount on their gas utility bill by simply using it. The catch is that the card has an annual fee of HUF 5,900. Then let's not forget the interest rate, which, during these times, people may have trouble paying their gas bill on times.

So why not do what the Hungarian government does and delay your payment for gas, pay a high interest rate, and in the end pay more for your gas.

Thursday, June 11, 2009

The dramatic crash that is Hungary

The fall in GDP in Hungary is staggering. To an extent the fall for other countries is dramatic, but the thing to consider is how many years it will take to rise back to the overall economic level that existed in 2007. If we have a significant drop in GDP this year and in 2010 (even if it stays flat), the ability for Hungarians to reach parity with Western Europeans is even that much further out. That is unless they fall further behind Hungary - which just maybe shouldn't be discounted.

Wednesday, June 10, 2009

Decreasing Gas Prices

Well, even the headline writer didn't believe it 'Bulgargaz Offers 33% Increase in Natural Gas Price' when actually the price will be declining by that much. The cited reasons for the decrease rests on the fall of the wholesale price of gas and the fall in alternative fuels and the exchange rate with the dollar. Now, let's wait and see if other countries also follow through with significant reductions in their gas prices. I wouldn't keep my fingers crossed.

Friday, June 5, 2009

Haggling in the Turkish Bazaar

For anyone that has enjoyed bargaining over a Turkish carpet in Turkey, or in my case a engagement ring, the experience is usually pleasant and filled with a lot of back and forth. Thus as the Jamestown Foundation reports via Reuter, negotations with Turkey and their bargaining position of 15% of off take from the Nabucco pipeline are still ongoing.

Yildiz was asked about the Nabucco Managing Director Reinhard Mitschek's earlier comments that Turkey's demand for "the 15 percent out-take is not on the table" (Reuters, May 29). In response, Yildiz insisted that Turkey's demand was still under consideration. After noting that lively bargaining was occurring, he maintained that the Europeans appreciated Turkish concerns. "They are not completely indifferent to 15 percent. The real problem is about its modality... It might be possible to exclude it from the intergovernmental agreement, and then regulate it under another agreement" (Cihan Haber Ajansi, June 3).

While the bazaar also offers alternative sellers of carpets to buy from, Turkey remains essential to the success of Nabucco. So let's not expect the Turks to go much lower.

Thursday, June 4, 2009

Visions of the (Western) European Energy Future

So if Russia turned off all the gas taps to Europe, Europe would be fine, since other alternatives are possible - unless you are Bulgaria. Well, that was the viewpoint of one leading (Western European) academic of at the 6th European Energy Market Conference in Leuven, Belgium. I attended it last week (May 27-29, 2009).

To keep you in suspense and to keep you reading, I'll come back to the gas presentation, after I run through the contents of the conference and how actual alternative energy systems are very much part of the future, which also challenges the assumption of Europe, and let's not us forget Eastern Europe's ability to withstand a cutoff of Russian gas.

But I have to offer one disclaimer, in my notes I did not write the speakers name. I'll put this down having an awful cold during the conference, and even now I'm coughing up a lung. When the presentations are sent out hopefully they'll shed some more light.

One of the first speakers at the conference described the building of an intelligent network and distribution system which includes communication technologies relying on broadband internet and software forming it into a multilayered and interdependent system. He established the energy industry as the 21st century source of innovation infused with novelty and breakthroughs. On this point, all were in agreement, but thinking back on it, there were still limited examples of the actual application of these novel solutions. While we are only 9 years into the 21st century one can still hope that we will enter into it sooner rather than later. The fact, told at the conference, that much of Europe's energy infrastructure needs to be replaced, due to it's age, in the next 10 to 20 years offer this opportunity for re-engineering the transmission network. Maybe in it's replacement we see these smart concepts and a 21st century grid built.

The regulatory issues and Europe's third energy package were also discussed. Probably the best description of this debate is there is emerging a bidirectional flow of energy, information and money. And as we know the proper implementation of regulation can aid and foster this bidirectional flow.

The greater coordination of regulation and infrastructure building also offers opportunities to balance out reasonable prices, with security of supply concerns and the environment, as explained by one speaker from Electrabel. Importantly, as expressed by ETSO, the investments that occur today need to be informed by scenarios beyond 2020. Scenerios that include smart cars and smart grids. But as I will note below, does this include the cutting off of gas from Russia?

Regional markets and their importance and the importance of a regional regulator were espoused. I love it all and it is spot on. The solutions lie in regional cooperation with practical solutions such as 'social transmission charges' for communities not directly benefiting from transmission lines. I guess this could be labled as 'local blackmail' or 'political opportunitism', but from a geographical point of view, it can be called 'locational advantage'.

Cool word: fugitive emissions

Best useful factual thought: oil volitility depends on past volitility, natural gas volitility responds to unanticipated events such as supply interruptions or reduced stock.

Now we arrive to the Friday afternoon session on the European gas market. Or rather the geopolitics of gas. And yet another important quote speaks from my notes, "natural gas may become the fuel of consequence because of the delays in building enough renewable energy sources and implimentation of CCS technology." And despite predictions, gas demand won't drop until at least 2020, because of the failure to diversify now. Due to the low CO2 from gas and the ability to build gas generation quickly it can fill this technological gap.

Diversification was spoken of. Diversification from the Ukraine, through Nabucco and LNG. The consideration was there of mutual dependency of Russia and Europe on Russian gas supply. I think it needs to be examined, just like the concept of 'mutual destruction', was considered, how 'mutual gas dependency' influences the political and economic activiities of Europe, Russia and the US. Does this ursurp mutual destruction?

However, at the same time it is seen that cross-border flows, mainly within Europe's interconnectors, are key to the continents long term security of supply. But national protection needs to be avoided. Strategic gas storage is unsound and should be avoided - it is for the short term and does nothing for the long term security of supply.

So now we come back to the point about Russian gas. Easily for the next 10 to 20 years we have increasing demand for gas while the 21st energy system is being developed and deployed to a limited extent by 2030. To satisfy this increase in demand for gas, the solution will come from building more LNG facilities and gas pipelines from Russia and central Asia. However, even if planned LNG terminals are built in Poland and Croatia and interconnector capacity is increased, by design, there will still be a large dependency on Russian gas. As pointed out by a speaker, if the failure to build adequate renewable energy sources and a technological hurddle exists for CCS, then gas will become an increasing part of the electricity mix with new capacity meeting this new demand, thereby not displacing Russian gas. Thus reliance on Russian gas and all the geo-economic-politics that goes along with it should not be seen as diminishing in the foreseeable future, nor the effects of turning off the taps. Energy independence and security of supply are boosted when external threats to supply disruptions, with consideration of cost, are reduced to a small percentage. It remains to be seen whether Russia will be a reliable supplier to Europe once alternatives to Ukrainian transit are removed.

Monday, June 1, 2009

Wind Power and Agreement in America

Here is a well written and produced video story about the growth of wind power in Texas and its acceptance. While this story is well known, this is a good overview and touches on a number of topics I'll be writing on in the coming days. I attended an energy conference last week and came away with some strong impressions of the future make up of Europe's energy infrastructure.

Sunday, May 31, 2009

The Privatization of Electricity Companies in the SEE Region

The report that Vidmantas Jankauskas and I wrote for USAID and NARUC is finally publicly released. I'm very happy to say. It is about the privatization of the electricity distribution companies in Bulgaria, Macedonia and Romania. Through case studies we explore key issues that have influenced the successful or not-so-successful outcomes of these privatizations. The overall objective of the project was to create a list of issues that can help future privatizations. I think we have done this. But any feedback on this would be greatly appreciated. You can find the full report on the REKK website.

Thursday, May 21, 2009

Types of Gas Networks - boring but interesting

The below discussion is a little out of context, and season, but nonetheless, I thought it was good to put in context the different business models. I'm drawing on something that I'm working on right now, so excuse the out of context nature of the text, but it should still be informative.

Gas networks are not national in scope. The discussion of the impact of the Russia-Ukraine gas dispute is many times broken down by country with some emphasis of the regional impact. However, it is the very nature of all networks that they are not isolated. In general, constrained networks, particularly in energy, have limited flexibility and contain limited redundancies. These security of supply elements are at their starkest in times of crisis, whether it is electricity blackouts or gas supply disruptions, in cases where there is greater systemic flexibility, disruptions will occur less or last for a shorter period of time. Therefore it is important to consider the current and future design of the CEE and SEE gas network and the accompanying business models. It is at this point that the economics, geopolitics and social impacts of the 2009 gas disruption and how to mitigate a repeat of it are most visible.

If we look at the different characteristics of the security [of supply] question, it arises that networks are at the core of the problem, and today this assumption is subject of a consensus. We may consider two types of possible network development in order to secure supply.

1. Transit pattern: build more pipelines between suppliers and consumers and thus increase the capacity of existing infrastructure in order to get more gas in the market.

2. Network pattern: reinforce the communicability of the internal system by creating links between consumers; strengthen the interconnections between member countries. (Pirovska 2004:7)

The first option of network development, explained by Pirovska, is chosen by Gazprom which seeks to increase capacity through multiple transit pipelines and corridors in order to directly connect with national TSOs. By supplying countries through this method, there is little economic incentive for national suppliers to build interlinking gas systems – as long as the gas continuously arrives.

However, if the development of an efficient and competitive market is chosen as a viable goal in gas network development, which also stresses the need for contingencies for security of supply, than strengthening local and regional networks should be a high priority. The example that can be used here is the development of the New European Transmission System (NETS) project promoted by MOL. This seeks to integrate the national gas networks of the SEE and some CEE countries into a grouping of companies with a highly integrated gas network with multiple inputs points. However, so far, there has been limited interest in developing this concept from potential participating countries.

These two methods of network development are both supported by the EU, but the first option is certainly the most prevalent in the SEE and parts of the CEE region. The halting of gas deliveries in January 2009 from Russia underscores, from a security of supply point of view, the vulnerability in the first system and the long term viability in the second of network pattern development.


Pirovska, Margarita. “Interconnection of East European
Natural Gas markets: towards a
cooperation between players?.” working paper, 2004.

Friday, May 8, 2009

Oh Wait! Who owns Emfesz?

To add to the ongoing saga of what is happening with the shutting down of RosUkrEnergo, here is this very interesting piece in describing what appears to be an illegal taking of the whole Emfesz company.

Mabofi Holdings Limited has on Thursday claimed it is the “legal owner of 100% of the issued share capital" in Hungarian natural gas trading company Emfesz, which was sold to Switzerland-based RosGas. Mabofi said it would seek legal ways to have its ownership restored.

Since the article will soon be restricted unless you register with, I'll describe what they write.

Cyprus-registered Mabofi is part of Group DF Limited, the holding company of the business assets of Dmitry Firtash.

The rest below is from a statement released by Director David Brown(cf, it really is classic.

“Mabofi discovered on the morning of the 6th May 2009, that the shares in Emfesz had been fraudulently transferred to a Swiss company registered in Zug, Switzerland, RosGas A.G. This purported transfer has been registered with the authorities in Hungary. There is no information available as to the beneficial ownership of RosGas, but one of its directors is Mr Tamás Gazda, a Hungarian lawyer, who was employed by Emfesz, under the direct instructions of the Emfesz General Director, István Góczi."

“Neither Mabofi, Group DF or any of the senior management of the group had any knowledge of this transaction, and have given no approval whatsoever. Our understanding is that István Góczi (who is in the process of being removed from the board of directors of Group DF Limited) has carried out this transaction based on a power of attorney given to him in October 2004, primarily giving him the powers to carry out the original acquisition of Emfesz."
“Mabofi is now actively pursuing all of its legal rights in Hungary, Cyprus and Switzerland, and is confident that the ownership of Emfesz will be restored to its rightful owner as soon as possible."
(my emphasis)

I guess I should amend my last post. But then it is only Friday afternoon and who knows what will emerge by Monday morning. Either way, just when you start to formulate an analysis and perceive some strategic moves, there emerges some completely different information that throws the analysis into the trash. Now the only step is to dig into who Istvan Goczi is and why he is being removed. I think one could speculate that he may not have been working with only Group DF Limited interests in mind. But let's wait and see what crops up next week.

Wednesday, May 6, 2009

The Rebirth of Middlemen for Russian Gas

The arranged demise of RosUkrEnergo (RUE), the intermediary of Russian gas, after the Russian/Ukraine gas dispute in January 2009 was meant to bring clarity to purchasing Russian gas. The contracts held by RUE involved deals with Hungary's Emfesz and Poland's PGNiG. With the shutting down of the company these buyers have had to find another way of buying gas from Russia. It seems though that the role of intermediaries is not over.

You would think - well, depending how long you thought for - that you could just go to Gazprom and buy the gas that you needed. I mean, who else sells gas in the quantities that a domestic supplier needs in CEE? PGNiG is pursuing this strategy by agreeing to buy gas from Gazprom according to newsreports:

May 4, 2009
Rzeczpospolita, 29 Apr 2009, online:- Polish newspaper Rzeczpospolita has found out that the Polish national oil and gas concern PGNiG, which estimates its gas supply shortage at 2.5 billion cubic metres, is not going to accept the gas supply offer of the Hungarian Emfesh (sic), as it prefers to buy gas directly from a producer rather than from an intermediary.

The brief article goes on to say that PGNiG is in talks and early agreement with Gazprom. But we'll have to wait and see what entity the deal is inked with. BECAUSE, it is interesting to note that a) Emfesz was even bidding to supply gas to PGNiG and b) that Emfesz just announced that it would be buying gas from RosGas AG. According to Emfesz and this analysis by Roman Kupchinsky in his posting from the Jamestown Foundation, RosGas AG actualy belongs to the owners of Emfesz and Gazprom. However, this connection to Gazprom has been denied by Gazprom, as Kupchinsky explains and disputes.

At this point, there are a lot of loose ends and I'm not sure how to draw a conclusion about this. I can only say that it is interesting that Emfesz was bidding to supply Poland with gas when it would obviously be buying gas from Gazprom, and possibly through RosGas, which could supply the contract. We'll have to wait and see which entity PGNiG signs the contract with. Either way, the demise of RUE does not signal the end of murkey ownership and supply structure when it comes to Russian gas. Kupchinsky explains the establishment of RosGas as reward for one of Emfesz's owner for loyalty. I think there are other ways, even for Russians, to reward loyalty, we'll have to wait and see how other factors in Hungary, particularly with Russia's new interest in MOL play out. Loyalty is most effective when you are working together over the long term.

Monday, January 19, 2009

Collapse of Utilities in 1929 Portends Financial Collapse in 2008

While going through my PhD thesis, I came across the following section written in 2005, which describes how the utilities helped plunge the US (and the world) into the Great Depression. It reads just like it happened now, but in the financial sector.

Do two things while reading this. Replace 'utilities' with 'financial firms and mortgage brokers' and you'll find out, how through the gaps in the regulatory process crisis occurs.

...This tight government regulation at the higher ‘state’ scale did not mean the private utilities lost out (public utilities stayed mainly within their municipal boundaries). In fact, as Samual Insull, one of the founding moguls of private electricity in America, remarked in 1913, “there is one great advantage that must follow regulation, and that advantage is protection” (Hirsh 1999: 30). There are a number of different reasons that the state enacted regulations over the industry forming a new consensus between government institutions and chiefly private electricity companies.

As a key element of the utility consensus, regulation [agreement by all parties for existence of a ‘natural monopoly’ and its regulation] constituted a social experiment typical of other reforms of the Progressive era. In drafting legislation that established state commissions, elite groups recognized the need to curtail abuses of large, technology-based companies that offered vital public services. At the same time, they realized that these companies could provide great value to society as a result of their size and technological prowess. The laws therefore reinforced the truth that companies were natural monopolies, and they outlined the commissioners’ responsibilities to enforce the obligations and maintain the rights of utilities (Hirsh 1999: 30).

By the early 1920s, two-thirds of states had established public utility commissions, in addition to the existing municipal authorities. Ever since, this division of powers in the US has come to play an important part in states maintaining regulatory control over electric companies.

States are closer to the electricity customers, sensitive to local economic and environmental concerns, the source of electric company franchises and rights of way, and… staffed sufficiently to regulate hundreds of electric companies (Kelly 1995: 127).

While there are advantages in this proximity of regulators and companies, there are also disadvantageous that involve the bounded geographic reach of states. At the same time that states erected regulatory commissions, the owners of electric companies continued their spatial-scale expansion throughout America, by establishing a complex maze of private holding companies with numerous local electricity companies.

Holding companies were initially created in the late 1800s to help smaller electrical companies purchase and operate the expensive equipment to generate electricity. In return for the equipment manufacturers (such as General Electric or Westinghouse Electric) or financial firms would receive bonds or stocks, and thus a stake in the new electricity companies. As these stocks were often bundled into one company, such as the Electric Bond and Share Company, these became known as ‘holding companies’(Hirsh 1999: 35), thereby financed against the capital investment of a company and not its projected income.

Involvement in a holding company, for smaller companies, held advantages. The larger holding companies would provide management and technical expertise that the smaller firms would not be able to afford on their own.

However, if two holding companies were merged and new securities issued the securitized value of the new holding company (and the stocks issued) could exceed the total capitalization of the operating firms. Despite this risk (and the harm it would later cause) investment bankers on Wall Street focused on the benefits for the smaller electrical companies. For GE and Westinghouse, they benefited from selling their products and through their investments. “Put simply, as more parties benefited from the existing structure of the utility system, they helped create substantial momentum” (Hirsh 1999: 37).

Eventually holding companies became known for their abuses, including the artificial inflation of stocks and the subsidization of rates in one state or region to allow lower rates in more competitive markets.

State regulatory agencies failed in efforts to track costs and profits that could be shifted across state lines, or into a blur of bookkeeping transactions between affiliated companies. [Companies] found that the largest profits were not to be made in the operation of power companies, but in padding out charges for financing, engineering, fuel and equipment services (Ridley 1996: 18).

A constant financial shell game developed between states so that by 1928, 16 major electric companies controlled 85 percent of the electricity produced in the US (Ridley 1996: 17). The utility entrepreneur Insull who pushed for state regulation to ensure monopoly status had also made another (short-term) winning assumption.
In the dizzying stock market climb of the late 1920s, speculation on utility stock ran wild. Some of the holding companies would trade stock back and forth between subsidiaries, inflating its value with each exchange. Based on rampant speculation, Insull’s personal fortune increased from $5 million in 1927 to $150 million in 1929. (Ridley 1996: 18)

The jurisdictional limit of state regulators was thus exposed. The establishment of state commissions had been seen as an effective way to regulate expanding utilities, but the continued scaling up of utilities and the development of national financial markets, exposed the jurisdictional limits of state regulators.

The financial and market shenanigans of private utilities, despite the oversight of state regulatory authorities, finally led to the federal government stepping in to fill the regulatory gap, triggered by the spectacular crash of utility companies at the start of the Great Depression. This put society on skid row, politicians up a tree and the economy in the gutter.

Friday, January 9, 2009

Hungary Offers a Cannister of Gas to Freezing Serbia

Hungary has decided to send a little gas Serbia's way. While this is certainly a good thing, it can be seen as a reluctant step to help out a freezing neighbor. The question is should Hungary send more to a neighbor that has no reserves and is freezing its butt off now. That is since heating has been turned of for some residential customers? Also, how does contribute to CEE/SEE regional cooperation Hungary has called for?

The amount of gas that Hungary is sending to Serbia between 1 to 2 million cubic meters is just about the same amount that is being sent from Austria to Hungary (1.5 million cubic meters as of Weds. MTI-subscription only). While it is stated that amount being sent is also equal to the amount that Hungarians conserves (spongy estimates in a cold snap). So in reality the reluctance of the Hungarians to send gas and to make it seem that they are giving charity to Serbia is lame since they are only 'taking' Austrian reserves and sending those through to Serbia.

In crisis situations there should be a willingness to help out ones neighbor. And even then, there should be an attempt to make some sacrifice to ensure your neighbor is not freezing to death. For Hungary to offer the bare minimum, which only is equal to the amount not consumed in Hungary - and related to what is being sent from Austria, is similar to sending half a life jacket to your drowning friend while you sit in the boat.

The final point here is also, the idea of regional cooperation. The NETS project organized by MOL is being established which in a situation like this could help out by operating a regional gas reserve. There will no doubt still be national gas reserves, but under infrastructure improvements and greater coordination, reserve requirements and places for storage can be spread throughout the region. Moving gas between countries when external supplies are cut off is a key element for increasing the security of supply in the CEE and SEE region. NETS is being built with this partially in mind. But success can only come if mutual trust and a willingness to help out exist - Hungarian actions do not qualify.

Wednesday, January 7, 2009

Why being Green-ish may not pay with Russia

I like the following article for the sheer fact that in this case, the old gasoline and diesel is still reliable.

In Bulgaria's top ski resort, Borovetz, which relies on natural gas for heating and energy they are now a bit concerned about getting enough gas. So they sent a letter to the

state-owned gas monopoly Bulgargaz asking them to secure the necessary quantities of natural gas for the top ski resort where all the hotels and other tourist establishments rely on gas-fueled heating. At the same, Bulgaria's other top winter resort Bansko is not affected at all by the gas shortage as all of its facilities are running on gasoline and diesel, the Bansko Mayor Alexander Kravarov announced as quoted by the Pari Daily.

I guess my only comment on this is how much does it cost to run a ski resort on gasoline and diesel? While no doubt a change over to gas and/or with some renewable energy would be expensive, there must be some cost savings in there. But then aren't they lucky that they didn't have to operate during last year's price spike.

Tuesday, January 6, 2009

Looking for the Golden Gas Route

The cold seeping into the house can put your mind to work if you imagine what it would be like to have no heat, no gas, and a low alcohol supply. The New Year seems to bring with it not just its seasonal cold but the Russian/Ukraine gas dispute. What is known this is not a new dispute (good article and worth a read). But what I think is new this year is the emphasis in the media about a 'reliable' supply route that avoids the Ukraine.

For Russia to make the claim that both the North Stream and South Stream need to progress in order to have secure gas supplies misses European understandings. In Europe the current conflict, whether an annual event or not, underscores the need to diversify away from Russia. There is no doubt that the Ukraine is not an innocent victim here, but will a gas network that goes around the Ukraine really make a difference?

Recently, there has been greater impetus given to the Nabucco project from the EU Commission, it remains to be seen whether this will be enough to move along this gorilla of a project. If all options are considered, then Nabucco can help the EU diversify its supply, which simply translates into greater security of supply.

When you have the Russian President being the CEO of Gazprom, is there a better symbol of cooperation between a country's politics and economic spheres? Gas is an economic weapon, the only question is whether the EU (and in particular CEE countries) want to reduce the damage such a weapon can do.