Can Utilities Cash In on AI Without Making Consumers Pay?
Syria Diesel Prices Jump 40% Triggering Widespread Unrest Leonard S.
Hyman is an economist and financial analyst specializing in the energy sector.
He headed utility equity research at a major brokerage house and… If GENCO is the answer, then what is the question? Simply put, is GENCO the answer to the question of how the electric industry can get into the AI action without compromising utility finances and disadvantaging the rest of the customers? First, some history.
The word GENCO (short for generating company) was applied to independent (unregulated) generators that proliferated like rabbits after deregulation at the turn of the century.
A large number of them went bankrupt due to overcapacity, demand below expectations, and too much debt.
Since utilities did not own local GENCOs, neither they nor their customers had to bail out the distressed GENCOs.
Regulated utilities would love to get this business, but if they put expensive new power stations built specifically to serve AI into their rate base, everyone’s electric bill will rise, meaning that all customers would pay more to subsidize the AI load.
And even worse, if the AI load did not materialize or dropped sharply, the rest of the utility’s customers would still have to pay for that newly added, expensive power generating capacity.
So, how about setting up a separate GENCO to serve the AI load, affiliated with the utility and its holding company, and finance it with its own debt, separately from that of the utility? Then, if the GENCO runs into difficulties, the utility and its customers, “ring-fenced” from the GENCO, won’t be directly affected.
Sounds great.Related: Uniper to Sell Gas Pipeline Stake to Meet EU State Aid Conditions Of course, its success in insulating consumers from AI risks depends on the details.
For instance, does the utility contract to buy the electricity for a term of years from the affiliated GENCO and then sell it to the AI center, with a contract that passes on all costs? Well, what if the duration of the utility’s contract to purchase the power exceeds the actual (rather than the planned) life of the AI project? The utility and its customers are stuck, right? What if the utility improperly defines all the costs? Will consumers or the utility pay the shortfall? These are not academic questions.
The AI firms have the money to splash around in political circles and in lawsuits, and the regulators often do not have the knowledge to judge the issues critically, leaving consumers with the short end of the stick.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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