The news from California is frightening. The electricity supply has become so tenuous that it took quick action by the Water Resources Board to avert rolling blackouts yesterday, Sunday January 21, 2001. When supplying normal loads on a Sunday is an emergency, things are very, very, very bad. (My high school English teacher would be appalled by my excessive use of the same adverb, but I cannot think of any better way to emphasize just how BAD it is.)
Severe consequences of the crisis are already being felt, just a few weeks after the situation finally became visible on the national news radar screen. Gasoline production and distribution is being disrupted; some stations will begin running out of supplies this week. Dairy farmers must dump milk; the processors have lost so much production time that they cannot keep up with the cows.
Students are either being taught in the dark or they are being sent home. Restaurants, stores, factories, dry cleaners, greenhouses, farms, and essentially every other supplier of vital services are being hurt, some so badly that they are either contemplating relocation or simply going out of business.
Meanwhile, state leaders are scampering about looking for cover, blaming everyone else they can think of. At this point in the situation, assessing blame should be way down on the priority list. The focus should be on finding solutions that minimize the long-term damage to the state that used to provide 12% of the nation’s GNP. (It will take some time for the statistics to catch up with the reality on the ground, but it is pretty obvious that all of those shuttered businesses are not producing what they used to.)
One of the most important actions is to quit trying to “protect” ratepayers by lying to them about power costs. When you generate electricity using natural gas as the fuel source, it is easy to determine the absolute minimum cost of the power. Every $1 per million BTU of natural gas equates to about 1 cent per kWh. When gas is trading for $18-80 per million BTU and consumers are paying 6.5 cents per kWh, there is absolutely no reason why any generator should want to be in business.
Every day that the government delays in telling people the truth power distributors are spending tens of millions of dollars more than they are allowed to charge. For a time, the suckers were the big utilities, but they have essentially run out of money. From now on, the state will be spending taxpayer money to protect “ratepayers.” I have not yet met an electric power ratepayer who is not a taxpayer or a taxpayer, who is not a ratepayer. I have also never found a situation where paying someone to move money from one pocket to another results in anything but empty pockets.
Removing the caps on the price of electricity will be painful, but there is no other fair way to distribute the pain. It would be far better for the state to use its resources to help those hurt the most than to spend it far faster isolating everyone, including moguls in hilltop homes from the consequences of a whole string of decisions gone bad.
When people pay the true cost of electricity, they use every possible means to reduce their consumption. Demand will drop significantly, perhaps even enough to restore power to the interruptible customers who never expected to have to drop off the system for up to 18 hours per day.
Allowing market based power prices to reach the ultimate consumer will also restore the confidence of the financial markets and the fuel suppliers that debts incurred will be paid. The risk premiums that are now being charged to cover for the potential of default are simply adding to the pain.
Market prices will also encourage a surge of new suppliers. There are ways to produce electricity that are cheaper than burning natural gas. California not only has too few power plants now, but even the ones that it has must be replaced if customers want to avoid a future of excessive prices. There is a lot of work that needs to be done, but American companies will respond quickly with up-to-date technology when they recognize economic opportunity.
My favorite power technology is, of course, nuclear power, but I have recently learned about a product called Cenfuel (www.cenfuel.com) that makes a lot of sense to me. Cenfuel is purified coal that can be burned in a gas turbine.
The only significant atmospheric emission is CO2 and even that is reduced when compared to legacy coal plants when the fuel is burned in efficient combined cycle plants. Cenfuel will probably sell for $3 per million BTU; it is based on a resource that is far more abundant than gas. Capacity addition should be quick since the ideal machine for its use is the same kind of gas turbine that is used in peaking power plants.
There are probably other possibilities out there for generation that can meet demands in a cost-effective manner without causing environmental catastrophe. The best way to get them implemented is for the state to establish a reasonably level playing field and then to get the heck out of the way. The referees cannot become the players; if they had the talent they would already have been in the game.
It deeply disturbs me to hear the way that the some people want to place the burden on the utility company stockholders. Until very recently, widows, orphans and other risk adverse investors were often counseled to purchase stock in public utility companies.
I can only imagine the impact on a widow very close to me if her utility had been exposed to the kind of rigged market that exists in California. As a conservative and loyal power company engineer for 35 years, Dad placed a great deal of faith in the company thrift plan and pension. Fortunately, we lived as far from California as possible.