Everyday we turn on the light switch and expect the lights to turn on and part of the reason is the Grid of electricity that has been developed. It has increased our expectations and most of us would have no clue what to do if the grid did not operate. However, things are not as perfect as our expectations believe they are. In a book called The Grid – The fraying wires between Americans and our energy future by Gretchen Bakke, published by Bloomsbury Publishing, NY, 2016, the author examines the history of the Grid and is it the best solution for the future?

What happened in 1969?

Part of the business model was improvements in technology meant increased plant efficiencies. There is a limit due to physics. The second law of thermodynamics, and its corollary Carnot’s theorem. dictate temperature ratios limit the amount of work any given fuel can be expected to do in a heat engine. A tradition power station changes fuel into heat. The efficiency tops around 50%.

The closer a steam plant comes to 40% efficiency, the more routine maintenance it needs, thus most plants run around 34%.

OPEC raised oil prices, which meant electrical bills went higher rather than stayed very low. The dreaded word of conservation happened across the system.

In Washington, slowly with the Carter administration and then with the deregulation of Reagan, one of the forms of regulation from the government was long-term guarantees coupled with assured profit on investment. Governments did this because electricity for all was seen as a public good.

Historically utilities money when people used electricity, the more we used the more money they made. Now they do not. They make money by transporting power and trading it as a commodity.

The conservation movement lead to decreased consumption. The brand new power plants are smaller, more dispersed and more variable than anything the grid has seen. In addition more solar panels on rooftops, wind farms providing variable power. Some of the construction of farms of solar panels or wind are owned by investment firms. Those investments tell a viewer which parts of the grid is falling apart. Money flows into investments, money does not necessarily go to the upkeep of old, lumbering power plants which is the backbone of America’s electrical generation facilities.

If we jump into the present, there are many micro systems and in places such as California, new homes are encouraged to have solar panels on them. This is a good thing and over the years, every utility company has figured out either the electricity is sold to the grid and the home owner pays the bill, but receive a chq or net metering and if the home owner uses more pays the difference or receives a credit. It took a number of years to determine what to do with micro systems.

Many utility companies installed smart meters, they can be read without someone coming to the house, but the other thing they do is which is more important for the utility. The data produced by the smart meter is proving essential to the creation of predictive models of electricity use, minute by minute. This allows the utility to monitor and distribute the electricity better and can ask large consumers of electricity to ramp down consumption for a few hours to balance the grid. Network enough of these power-savers into a flexible smart piece of software and you have your platform.

The demand-response capacity, called DR in the business, not only brings energy saved into the mix of resources available to grid operators, when enough of these are scattered but existing resources are networked together it is possible to create what is called a virtual power plant.

At the beginning of the invention of electricity, there were many micro grids primarily large users who could do it themselves. When electricity prices fell, they were change to a system with central making power, as prices rise, more and more large users are making their power or a reversal to what the system was. The issue is who pays for the upkeep of the infrastructure? There will be challenges in the future.

Linking to dividend paying stocks, for generations one of the safe investments was utility stocks because they operate in a monopoly situation. The companies together with the government saw electricity as a greater good and ensured the system made profits to pay dividends and ensure electricity flowed to all parts of the area. Most of us use electricity every day and our lives dependent on it which is a good thing. Utilities are changing and have changed and many investors, including me own them for their dividends. Similar to other industries when prices go up, people look for alternatives. As investors you want to ensure there is not enough alternative the company does not make profits, but so far many utilities have paid dividends for generations and able to increase the dividend.

There are more questions than answers, till the next time – to raising questions.

Everyday we turn on the light switch and expect the lights to turn on and part of the reason is the Grid of electricity that has been developed. It has increased our expectations and most of us would have no clue what to do if the grid did not operate. However, things are not as perfect as our expectations believe they are. In a book called The Grid – The fraying wires between Americans and our energy future by Gretchen Bakke, published by Bloomsbury Publishing, NY, 2016, the author examines the history of the Grid and is it the best solution for the future?

There are actually 3 distinct grids, one for the west, one for the east and Texas. More than 70% of the grid’s transmission lines and transformers are 25 years old and the average power plant is 34 years old. The design of the system was to produce large quantities of electricity in a big, centralized power plants. Both wind and solar power, which are useful to have, change the system because solar is decentralized power, and wind power is harnessed in relatively remote areas where there are few people. Once the design of the system was competed and operational, the companies which supply the centralized power plants – the oil, gas, or coal, interests, the railway companies which transport coal, the mining and oil and gas companies all have vested interests in keeping the system as it is.

Electricity is a force, it cannot be boxed or stored or shipped, it is always used the same instant it is made and the speed it happens is milliseconds.

From the start of the grid, it was designed to make money (which is one of the reasons to buy utility stocks).

In the early days of electrification there were many micro grids, and it was made and marketed to those that could afford it. The idea of electricity to all consumers was hinged on how to grow the system – encourage consumers to use more power by selling they stuff that needed to be plugged in. For example GE selling the refrigerator and then the electricity to run the electricity.

In the early years of electricity, in 1902 there were 815 city-owned and -governed municipal power companies in the US and it was growing by a hundred a year until 1907 which attributed to 30% of the power supply. The other 70% was made by private companies – most traction companies to run their streetcars, trains, industrial manufactories and commercial buildings.

Within 20 years, the 8 largest holding companies in the US controlled 75% of the electricity market. Much of this change is linked to Samuel Insull who spent his first 20 years working as Thomas Edison’s personal secretary.

Understanding electricity cannot be stockpiled, it cannot be stored, it is difficult to count and accurately bill. It requires a highly trained workforce to manage and to serve people the company needs to bear the cost of building and maintaining its infrastructure.

Unlike other monopolies, the secret to making a fortune off electricity was to lots of different kinds of customers in order to provide sufficient demand to run a large, centralized station 24/7.

Mr. Insull moved to run the Chicago Edison. The competition was 18 other companies central station electricity providers in Chicago’s downtown Loop along with 500 private plants. The problem was Chicago Edison’s 3,200 kilowatt plant produce power for 5,000 customers in the downtown, but demand fell drastically during the evenings or the electricity was in use 5.5% of the time.

How did he increase the customer base? First step lowered the price of electricity from 20 cents a kilowatt in 1897 to 10 cents in 1898 and lowered one cent a year till it reached 2.5 cents a kilowatt in 1909. This increased the customer base to 200,000 by 1913 or 10% of the population of the city.

To land the manufacturing companies which produced their own electricity, he lowered the price to 0.5 cents a kilowatt for off-peak power. At that price, given the maintenance, upkeep and necessary costs to maintain a private system, companies moved over.

The process made money, because the plant had to operate no matter the demand or the most serious problem of central station management and by far the greatest item of cost is interest on investment. Thus, selling more kilowatts the interest cost per unit fell because the cost was spread across a larger number of units.

This strategy to grow the absolute number of people served and amount of electricity consumed was to last into the 1960’s.

Mr. Insull’s other idea was to build more, bigger and more efficient power plants. He used government regulation to protect his interests from competition and to insure long-term low interest construction loans.

The big power companies Southern California Edison, Detroit Edison, United Corporation followed the same business models and consolidation was seen in the Investor owned utilities.

5 years after Insull arrived in Chicago, Chicago Edison owned every electrical company in the Loop. He also owned their generating stations and they were all shut down and replaced by a largest power plant in the world at Harrison Street. Efficiencies improved from 2.5% to 20%.

Linking to dividend paying stocks, buying investor owned utilities has been and continues to be in many dividend producing portfolios. While very inexpensive electricity maybe a thing of the past, it is hard to imagine not being hooked up to the grid and paying a monthly bill. As long as the regulators give yearly raises to electricity companies, they will be a good investment.

There are more questions than answers, till the next time – to raising questions.

In every industry, the government pays an important role, for business ideally it is a supporting role, but not always. In the world of government, various political issues rise up and some form of regulation is called for to save the souls of the young people. For those of us who pass being young but not young at heart, often times the regulations called for is just noise, but to advertisers it means something else. Every since the introduction of the internet, the segmentation of media which appeals to groups of people has become ever more concentrated.

In an article by Shelia Dang of Reuters, if the US government tries to ban or lessen the impact of TikTok, then advertisers will need to advertise somewhere else. TikTok is a social media company which is owned or controlled by a Chinese company – ByteDance and in the government’s eyes that is connected to the Chinese government. For some that means Chinese government control.

The more important aspect is TikTok appeals to young people, and young people spend money which interests brands and advertisers. TikTok’s main rivals are Meta’s Reels and You Tube’s Shorts.

While advertising budgets are planned in advance, brands can quickly place or pull ads on social media to reason to events. Insider Intelligencer estimates TikTok will generate $6.8 billion in US ad revenue in 2024. The issue is would young people switch to the competition?

Linking to dividend paying stocks, all industries have alternatives it is often the leading market company has a dominance, but things can change sometimes management makes mistakes, the government changes the rules, and in the internet age, things can change quicker than before. For your investments, ensure you have reasonable and easy to achieve metrics of how the company is doing to making profits to pay your dividends. If the metrics are reached, you can do little until the next quarter and the dividends will allow you to time to do the things you want to do.

There are more questions than answers, till the next time – to raising questions.

Every company exists in the political reality of their country. During elections, politicians have to say and do say things to try to win votes. After the election, the reality of economics comes into play. During the election, all political parties have a base to appeal to and they need to keep the easy votes. An example is a merger and acquisition target.

In an article by Josh Boak of the Associated Press, US President Joe Biden says he is opposed to the sale of US Steel to Nippon Steel of Japan.

In a political press release, Mr. Biden says US Steel has been an iconic American steel company for more than a century and it is vital for it remain an American steel company that is domestically owned and operated.

To digest to a brief history, Andrew Carnegie built US Steel to be the largest steel company in the world, but in 1982 reported a $852 million loss. To understand the reason, Clayton Christensen of Harvard University gave lessons on disruption. For example, in the steel industry, the recyclers started at the low end of steel, US Steel was not making money so it gave the market away. Through innovation the recyclers of steel could move up the value chain to greater margins, but US Steel had all the legacy costs and soon could not compete. Steel prices have gone up in the past couple years and now companies are making money.

Before Nippon Steel offer $14.1 billion in cash for the company, 2 smaller US companies had offered to buy US Steel.

Given this is election years, and the myth of dominance of US Steel is still around, politicians on both sides believe the merger should be blocked. The opponents are trying to invoke government regulations to slow down the merger.

Nippon Steel is advancing the arguments, it has been in the US producing steel since 1980; it would move its headquarters from Houston to Pittsburg; and among its steel operations are people in the United Steelworkers Workers (USW) and union contracts would continue with the merger. Nippon Steel also believed they could grow the business of US Steel with the introduction of electromagnetic steel sheet technologies.

Linking to dividend paying stocks, these companies are profitable and always looking to expand or do mergers. After studying the landscape and inspecting dozens of companies, a merger is announced, but sometimes the political landscape is missed. Fortunately, if the company really wants the candidate, they have the ability to wait until the political tea leaves are correct.

There are more questions than answers, till the next time – to raising questions.

Where ever we live, we tend to accept the rules that govern us and the institutions that have built up to serve us. It does not mean that it is the only way, but it is the way we know. Unless something goes off the rails and change is demanded, the institutions tend to keep going. In North America, we are used to unions fighting management for a greater piece of the pie. Little is thought about if the pie gets bigger or smaller, but there is a fight for a pie.

In an article from Reuters, in the country of Japan, unions and management work differently. In Japan there is usually a collaborative relationship between Japanese management and labor. The largest companies of Toyota, Panasonic, Nippon Steel and Nissan set the pace and Toyota Motor’s factory workers will receive pay increases of $259 and bonus payments. Toyota does not provide a percentage figure for the salary rise, but it was the largest in 25 years.

The affect of the wage increases is the expectation the Bank of Japan will decided to end negative rates of interest which has been in place since 2016.

Linking to dividend paying stocks, we all want to get to the same point, but there are rarely just one method to do that. In Japan management and unions work closer together than in America. In America one political party always wants to stop the power of unions and the other political power wants to increase the power of unions. Hopefully when you buy your investments, whatever the rules are in the country, the company does not break them or can live within the rules. With dividend paying stocks, some years you make more money in growth stocks, some years you lose more money in growth stocks, ideally you want to limit your losses and accent the long term gains.

There are more questions than answers, till the next time – to raising questions.

All around the world, there is a power relationship between those with capital and assess to capital and those that need it. Those that need it will have to pay higher rates or give more stringent demands to those that have access to credit. It is the same if you are a first type home buyer with minimal downpayment to development of resources in Africa.

In an article by Taiwo Adebayo of the Associated Press, the head of the African Development Bank Akinwmi Adesina is calling for an end to loans given in exchange for Africa’s rich supplies of oil and minerals. In recent times, deals with China allowed Chinese companies to gain control of resources and left some African countries in financial crisis.

Mr. Adesina said the deals come with a litany of problems. The uneven nature of negotiations, with lenders typically holding the upper hand and dictating terms. There is a power imbalance, lack of transparency and potential for corruption.

Mr. Adesina believes countries should use the African Development Bank and the International Monetary Fund to promote sustainable debt management.

One of Mr. Adesina’s bad loans is the country of Chad borrowing money from Glencore to develop oil in the country. Most of the money from producing oil goes to Glencore to pay off the loan as opposed to general revenues to help the people of Chad.

At least 11 countries have taken dozens of loans worth billions of dollars secured with natural resources since the 2000’s and China is the top source of funding through policy and state linked banks. An example is in the Congo signed in 2008. The financing gives Chinese firms such as Sinohydro and China Railways Group a 68% in a joint venture for copper and cobalt with Congo’s state mining company, Gecamines.

Last year, the state auditor demanded China’s infrastructure investment commitment be raised from $3 billion to $20 billion to match the value of the resources sold by the state. China rejects the auditor’s report.

Linking to dividend paying companies, when you invest for the long term, although you hope the relationships are win-win, the reality is because the company is profitable, the relationships can be one sided, but that is life. If the investment was never made or no risk was taking, the land would be or could be not developed. When the land is developed other spinoffs happen and can happen which allows at the macro level, the benefits are spread out.

There are more questions than answers, till the next time – to raising questions.

On summer vacation, one of the escapes from the city is to drive around an area where grape vines are grown. All over the world grapes are grown and all over the world people enjoy having a glass of wine. It is a good match and governments around the world encourage the grape production and most wine needs some level of exports for the grape growers to make money.

In an article by Peter Hobson of Reuters, Australia is the world’s 5th largest exporter of wine behind Italy, Spain, France, Chile and Australia. Other countries grow grapes to turn into wine but countries similar to China and the US export very little as they have large domestic consumption.

In Australia, they have 2 billion litres or about 2 years’ worth of wine of production in storage in mid-2023. The biggest export market of China has slowed down consumption of wine or there is no growth in the market.

In Australia, the price of grapes fell to $271 a ton last year, the lowest in decades and down from $587 in 2020, data from industry body West Australia show.

Much of the grapes are grown around in land lands such as the town of Griffith where Italian migrants in the 1950’s started growing grapes. Now the owners are 4th generation wine growers.

Jeremy Cass, head of Riverina Winegrape Growers Association, believes that up to a 25% of the vines need to be taken out of production which will result in less supply and increase prices. Since most wine owners are small operations, everyone knows what should happen, but few want to reduce their vineyards, unless there are government incentives to help out.

Around the world, people are drinking less wine and when they do, they tend to reach to a pricer bottle. Australian in not alone in the oversupply, Chile, France and the US have the same problem.

Linking to dividend paying stocks, in many industries the simple equation is what is happening with supply and demand for the base commodity. If you invest in companies that are based on commodities it is important to look at the commodity. Growth tends to mean an increase in demand, but are there alternatives? It is important to bring back your investing to simple equations such as profits = revenues – expenses are revenues higher than expenses, should you look for alternatives?

There are more questions than answers, till the next time – to raising questions.

If you are a normal investor, you will have a bias toward local even though there are stock markets around the world. Wherever there is a stock market the principles of profits = revenues – expenses rule. If revenues are greater than expenses, then profits will be made. If expenses including debt payments rise, then there are no profits. Those principles do not change, but still most investors are local in nature and that is not a bad thing. It is just something you need to be aware of.

In an article by Sinead Cruise and Yadarisa Shabong of Reuters, the second largest savings and mortgage provider in the United Kingdom, Nationwide Building Society has agreed to buy Virgin Money for $5 billion.

Nationwide holds almost 1 and 10 pounds saved in Britain and has 1 in 10 current accounts. This equates to 17 million customers and employs more than 16,000 people.

Virgin Money is the UK’s 6th largest retail bank by assets with 6.6 million customers with total lending of $126 billion including $98 billion in mortgages, with 7,300 people.

Virgin Money was founded by Sir Richard Branson’s Virgin Group which owns 14.5% and will vote its shares to merge. Richard Branson started with Virgin Records, moved in Virgin Air and there is a host of Virgin companies in the Group. The companies were to be innovative and appeal to a younger demographic. This maybe the reason, the company said it will keep the brand and gradually integrate into Nationwide over a several years or Virgin was wonderful assets but a slightly different work culture.

Linking to dividend paying stocks, while most investors focus on the country they live in, which is a good thing, there are other markets outside of where investors live. For a dividend investor, looking for a company which has a very solid base of customers and the company can make profits on a consistent basis allows you to look at stock markets around the world. Sometimes there are gems to be found if the country you live in stock market is going sideways. There are opportunities to be found.

There are more questions than answers, till the next time – to raising questions.

Every company needs to decided if they want to get bigger or stay the same size and it is up to the owners to decide. If they decide to get bigger often times that means a merger or acquisition is part of the process, for internal growth will get the company so far, but a merger could leap frog the company to the new point. Once a merger is decided, it will take a process to decide which company and what price? ideally the merger is more friendly that a fight, and then companies have to decide who will manage the larger organization. There are multiple decisions to be made but the issue is mergers will take a significant time of the senior management. Once they begin to put the time in, it is very difficult to drop the merger because the other side knows your financials and you know their financials. However, in most industries there is a regulatory body and often they say yes, but sometimes they say no.

In an article by David Shepardson and Aatreyee Dasgupta of Reuters, JetBlue and Spirit Airlines called off their $3.8 billion merger because a US judge blocked the deal on anti-competition concerns. If the merger had be successful, it would have created the 5th largest airline.

US Attorney General Merrick Garland said it was another victory for the Justice’s Department work on behalf of American consumers. The Justice Department believed the merger would seen fares raised and fewer choices by consumers.

JetBlue’s chief executive officer Joanna Geraghty believed after the loss of the court case, the probability of receiving a green light to move forward with the merger is extremely low.

Spirit CEO Ted Christie agreed and did not see a possibility to regulatory approval by the required July 24 deadline.

JetBlue will pay Spirit $69 million for dropping the merger. JetBlue had paid out $425 million in total prepayments.

Spirit Airlines, the 7th largest airline is facing weak demand as it tries to regain profitability. Some analysts believe the company is headed towards a Chapter 11 bankruptcy.

JetBlue, the 6th largest, is in better financial shape and expects to boost revenues by $300 million and on track to deliver $175-200 million in cost savings from its structural cost program.

Linking to dividend paying stocks, these companies have the revenues to be able to do mergers and every company has an active strategic planning process. All the companies look to do it internally or jump start the process with a merger. All mergers tend to need some form of government approvals which is why they pay lobby firms to ensure the process at least from the government goes smoothly. The idea is to ensure the government is either on your side or not against the company when mergers are announced. It could easily be said the management did not do their jobs as well as they should have in the JetBlue – Spirit merger. Possibly if Spirit does file for Chapter 11 bankruptcy, JetBlue will know which are the best assets to buy at a discount.

There are more questions than answers, till the next time – to raising questions.