Originally published by Power Online
On Tuesday, Jan. 9, the U.S. President Clinton is going to hold a meeting at which he plans to try to figure out what to do about the electricity supply situation in California. I have not yet received my invitation to the meeting, but when asked (fat chance), this is what I will say. I hope the President does not get offended by blunt wording. I know some of his advisors will not like what I have to say.
Mr. President, I assume you asked me here to give my best possible advice. First of all, ignore most of what you have read or heard so far; California’s problem was not caused by deregulation, it should be obvious to the most casual observer that the California electric market is not deregulated. If it were, the utilities would not have to ask permission to change their prices.
Secondly, let’s get rid of the absurd notion that giving people energy efficient light bulbs will solve the problem. Unless people become much smarter about electricity, giving away even the most energy efficient light bulbs has a better than even chance of increasing power demands. I would be willing to bet that more than half of the people will leave their lights on longer than they would have before they got the bulbs. The extra time that the lights are on will negate any efficiency savings.
Forget any idea that the solution is going to be quick and painless. The problems facing California have been accumulating for at least two decades; it is going to take some time to reverse the trend lines. As you know, people do not get fat overnight; they cannot permanently shed excess pounds with a fad diet.
A good start would be to remove the caps on the retail price of electricity so that the people using the product will get the message that electricity is valuable. The shock of the first bills will tell people that they will benefit by conservation. The “crisis” will disappear when the denial stops.
As leaders in the “negawatts” business rightly point out, we use more electricity than we really need. If Californians had to pay the true cost of generating and distributing the commodity, they would get smarter about how they use it.
They might start doing little things like turning off their computers overnight (how many of them really get faxes at 2 a.m.), turning off lights when they leave a room and possibly even unplugging any appliance with a remote control. (That’s right, even if the “Big Screen” is off, it uses electricity to keep it ready for instant response to its master’s command.) Unfortunately, there might be some more painful choices like laundries that close their doors, bakers who send their people home or plastics processors that move overseas.
Once Californians start counting kWh, perhaps they will take the time to learn a little about what electricity is. It is NOT a service or a right, it is a manufactured commodity that requires a continuing input of raw materials.
It is not like the telephone system or the Internet where once the wire is installed additional use is almost free. Sometimes, the raw material used to manufacture electricity is cheap, sometimes it falls out of the sky to fill a reservoir. Other electicity raw materials are quite costly; the natural gas needed to make a kWh of electricity can cost 50 or 60 cents during a cold spell in a drought year.
Conservation, however, requires regular sacrifice. People may get tired or bored with caring so much about their electricity usage. They will also tire of paying high prices and having those prices inhibit their ability to prosper.
The best way to keep the price of any commodity reasonable is for creative suppliers to enter the market. They will definitely come if the market gives the appropriate price signals. Hundreds of potential suppliers of electricity exist; the manufacturing technology is not very complex. As supply increases above demand, the suppliers will compete based on price and ability to serve; inefficient or high cost suppliers will lose market share and may have to go out of business.
This is where California has failed; the people, non-governmental organizations (NGOs) and the government have actively prevented new suppliers from entering the market. Most of the people involved in this effort will be horrified to learn that they have been helping the oil and gas people to prosper beyond almost anyone’s imagination.
The biggest beneficiaries of a policy that restricts supply of a desired product are those that control the existing supply. They charge higher prices than they would under a competitive environment while still maintaining market share.
Of course, there are many who recognize that California needs new suppliers, but most of them wrongly believe the situation favors the installation of natural gas fired combustion turbines. They have been told that those machines are the only reliable sources of electricity that can be installed quickly enough to meet demand.
What gas and turbine boosters fail to mention is that the window of opportunity for those machines is almost closed. The suppliers of the most efficient machines are now bragging to investors about order backlogs of several years because the demand is so high. Quoted turbine prices have increased by 10% to 30% in the past year.
Even if the turbines were readily available, the supply of gas is already being restricted by the ability of the infrastructure to deliver the product. New wells, pipelines, compressor stations and storage facilities are long lead-time investments that require years to decades.
Nuclear power offers an incredible bargain for California. The fuel is cheap and abundant and the plants do not produce any polluting gases. Even most proponents of nuclear power, however, have failed to suggest it as a solution to California’s energy supply situation.
They think it will take too long to propose and build the plants or that it would be inappropriate to build nuclear plants in a place that is subject to frequent earthquakes. Their lenses are hopelessly clouded by an incomplete understanding of the potential of the technology.
Do not let conventional wisdom eliminate this capable technology without challenging your staff to more fully investigate it. Direct them to determine if it is possible to build smaller reactors on tighter schedules. Ask if there is any way to build reactors that can withstand any possible shaking and if it is possible to build reactors that cannot melt. Find out if nuclear fuel can be recycled to reduce the waste problem even further into insignificance.
Be careful who you ask. It would be unreasonable to expect mainframe producers to recommend a client-server type solution to a computing problem; it would be just as unreasonable to expect GE, Enron or Exxon-Mobile executives to offer a machine with the characteristics of a South African PBMR as their preferred solution.
I suggest you ask people like Corbin McNeil (CEO of Exelon), Andy Kadak (currently of MIT), or even, Admiral Skip Boman (head of the Naval Reactors branch of the U.S. Department of Energy). Ask these men if it is now feasible to produce nuclear plants more suited to current demands than the behemoths that were designed 30 or more years ago. They will give you some interesting answers.