While participating in a discussion thread associated with my recent appearance on Dot Net Rocks, I remembered I’ve been meaning to write a post recommending that the the electricity production industry change its attitude about electricity conservation.
For many complex reasons, the power business is one of the only industries I can think of where the supply companies pay real money to run advertisements to convince people to stop buying so much of the product that they sell. Not only do the power companies buy ad time, they even provide subsidy payments to customers so that they can purchase new appliances that use less electricity.
During one of my previous lives, I ran a small injection molding factory. We worked really hard to figure out ways to persuade more customers to buy more of our product. Success in those efforts meant more work, more employees, and bigger paychecks, all of which were enabled by the increased revenues. Because of the amount effort we put into increasing sales, I have never understood why power companies spend so much effort to keep a lid on their growth.
It has not always been this way. In the 1990s, I met a very nice lady who had been laid off from Florida Power Corporation after more than 25 years of employment. Her undergraduate degree was in home economics; she had been hired by the power company in the 1960s to run classes that helped people understand the benefits of products like powerful vacuum cleaners, large ranges, heat pumps, large screen televisions and other useful devices that all used more electricity than the ones they were replacing.
That sales effort had been shelved under pressure from the Public Utility Commission, which had decided that power companies should feel guilty about selling power and instead should be helping customers find ways to use less and pay lower monthly bills. As a regulated utility, FPC did not fight back; the PUC set it up so that they made as much profit from the conservation program investments as they did from selling electricity.
Slow growth in electricity demand is one of the reasons that the wholesale generating business has not been kind to companies like Exelon and Entergy, both of which are trading for a substantial discount compared to their 2008 stock price. It is also one of the reasons that nearly every one of the 30 new nuclear reactor projects that was started after the Energy Policy Act of 2005 has been put on the slow road to development.
The emission free power that those reactors could provide does not carry a high enough price in the market to make the economic models work. That is especially true given the uncertainty associated with licensing and constructing a new nuclear power plant after more than three decades of inactivity in the nuclear plant construction business.
Since it is clear that slow growth discourages new capital investment and construction of modern facilities, I am pretty certain that the sustained effort to discourage electricity consumption is related to the sustained effort to discourage new nuclear power plant construction. The people in the business know that it is easier to just keep operating existing facilities, even if they are inefficient, dirtier and less reliable than new nuclear plants would be.
What most people do not fully grasp is that the lion’s share of the revenue produced by selling electricity ends up in the revenue lines of the fuel suppliers. With coal fired power plants, about 50 or 60% of the total cost of generation is the cost of supplying the fuel. For many natural gas fired plants, which are far more automated and have much lower capital costs, the fuel supplier can pocket as much as 85% of the total revenues that come from selling power.
In other words, there is a substantial motive for the established fuel suppliers to invest in efforts that slow demand growth. They have an incentive to push conservation programs because that increases the longevity of their locked in business arrangements.
Nukes need to rise up and spread the words that Jay Leno once used in a series of successful ads for Doritos snack chips – consumers should use all the power they need or want, we can always make more.
PS – I swear that I only noticed this piece in The Hill after I wrote the above – Sen. Murkowski: ‘Energy is good’. Wonder if President Obama wants to add a little bipartisan flavor to his cabinet. Senator Murkowski would my top pick for Secretary of Energy!
Here is the video of her energy policy news conference from C-Span.