As a student of the electrical power industry’s history, I have found many stories of a long running competition between public and private power suppliers. For most of my life, this discussion has been rather muted, with private forces seeming to have conquered the battlefield. The vast majority of the electrical power in the US is currently supplied by investor owned utilities or merchant power generators who have primary fiduciary responsibilities to their shareholders, not the public and not their customers.
It is time to reopen the competition and allow people more freedom to choose the way they want electricity to be produced and distributed.
The trouble with an electrical power supply system that is dominated by private interests is that electricity is a vital ingredient in every other business as well as being a vital resource for modern living. All Americans have a large investment in tools, entertainment systems, and life support systems that become useless the moment the power goes out. Businesses often must shutdown when their power supply disappears and some experience costs associated with process interruptions or food spoilage that vastly outweigh the economic losses of mere interruptions.
Electricity, therefore, is often far more valuable to customers than its actual market price. If there is a shortage of supply, prices can escalate very rapidly. Since production costs do not change at the same rate, those spurts of price escalation can be extremely profitable for the suppliers.
Since the suppliers are numbers driven businessmen who are focused on improving the bottom line for their shareholders and managers, it would be difficult to assume that they would fail to recognize that restraining new supplies will produce a situation where there are more frequent mismatches between supply and demand that result in demand outstripping supply. It would strain credibility to assert that those managers with sole fiduciary responsibility to their shareholders would ignore the advice of their business analysts and decide to build or restore any capacity that could be seen as excessive – from the supplier’s point of view.
Since the local supply of electricity is still dominated by either sanctioned monopolies or by regionally powerful suppliers that are a left-over from the days of strong regulated monopolies that had a legal “responsibility to serve”, there is little real competition in the electrical power supply business that can serve to restrain the natural tendency to maximize profit. The people who are deeply embedded in the business recognize that they run a risk of alienating their customers with behavior that results in unpredictable price increases, but they know that their customers have little choice and will purchase electricity anyway. However, they also have employ some skilled opinion shapers who have worked to convince a lot of policy makers and customers that it is somehow a good thing to keep new supplies out of the market.
This is an interesting aspect of the discussion that needs a logic check. In the days when public power systems or rate regulated utilities were charged with long range planning responsibility, there was a legitimate case to be made for keeping the cost of new investment under control and carefully reviewing new building plans. (Engineers have a natural tendency to want to build new things.) In those situations, the customers would be responsible for the cost of building and maintaining the new supply, even if it was far above what was needed. The system included some strong reviews of the public need for the new supply.
Today, there is still a strong system of public reviews that slows down any new supply project, even though the developers are often merchant suppliers without any rate setting process that guarantees them a return on their investment. In those situations, the public is not put at a financial risk if they allow or even encourage the new supply. The only entities that bear a financial risk in that case are the developers of the new supply AND (this is an important concept) the current suppliers in the market that will have to adjust – i. e. lower – their prices to compete with the new supply!
I have been thinking about this a lot as I hear more about “smart grids” that allow electrical suppliers to provide stable electricity even when the loads temporarily exceed supplies. Computer controlled grids perform this feat by sending millions of signals to preselected “non vital loads” or “unnecessary electrical appliances” to tell them to turn off. I often wonder if the people hearing the “smart grid” sales pitches listen closely and realize that means that the power supplier will install automated equipment that will reach into their homes or places of business and turn off certain devices. A clothes dryer running at 5:00 pm might seem like an unnecessary load to the “smart grid” controllers, but the customer who is trying to get ready for a night on the town by a quick wash and dry of a favorite garment might not agree.
However, the story that has really attracted my attention to this issue and encouraged me to write about it today – not sometime in the fuzzy future – was an article in the Chicago Tribune titled Zion plant powers up for teardown. According to that article, Exelon has until November to transfer the license of the Zion Nuclear Power Station to EnergySolutions, which will then begin a seven year process of dismantling the two unit, 2080 MWe nuclear power station that operated for approximately 25 years before having temporary outages extended into an indefinite (the company calls it “permanent”) shutdown.
I have written on this issue before in a post titled Could Zion be the Next Browns Ferry. Since that time, I have continued to probe and find additional sources that tell me that restoring Zion would not be terribly difficult from a technical point of view. It would not be “cheap”, but for something in the general neighborhood of $1-5 billion dollars, the plant could become a fully licensed and operable greenhouse gas emission-free nuclear plant with perhaps 20-40 more years of operational life remaining. (Those are big ranges for both cost and lifetime, but I do not have access to detailed technical and financial information that would allow a more refined set of numbers. However, they should be reasonably compelling in a time when Southern Company is going full steam ahead to build a similarly sized two unit addition to Vogtle for an estimated cost of $14-18 billion.)
My general understanding of the physical condition of Zion was reinforced by the following statement in Friday’s Chicago Tribune article:
Inside, the control room remains staffed by engineers who check radiation levels throughout the plant. But their numbers are far fewer than before 1998, when the two reactors went permanently dark.
“A lot of people are surprised, because they think they’re going to find tumbleweeds and the place just falling apart,” plant manager Ron Schuster said.
In other words, the
plant is still intact and it is still being patrolled and monitored. No one has been selling off components for scrap. NRC standards have changed a good deal since Zion was first constructed, and there is probably a need to do some component replacement (steam generators, for example) and system upgrading, but there is apparently no technical issue that is too large to overcome.
My sources tell me that the issue is not technical, but financial. The financial issue is not whether or not the project cost is too much for the amount of capacity that can be delivered, but the effect that the additional capacity will have on the market price for electricity in the service territory. These people were classically trained businessmen, they think it is perfectly legitimate to make the determination that if adding capacity lowers customer prices to the point where the total company revenue would be less than it was before, the investment in restoration would be wasted and should be avoided.
When I compare that market driven attitude to what I experienced in France when I was touring Areva facilities in France last week, in a system where capacity is under construction in anticipation of it being needed in the future to keep the entire economy moving forward, I thought about the days when we had that same kind of long range thinking in the US.
I am old enough to have watched “Leave it to Beaver” when the show was not in reruns. My father worked for an investor owned utility that was still under rate regulation with a responsibility to serve. They built a sufficient quantity of power stations to keep the lights on with a very high percentage of uptime and did not benefit when there was any imbalance between supply and demand. Their philosophy was closer to the tag line from the 1980s vintage Doritos chip commercial “Crunch all you want. We’ll make more.”
Electricity is a vital commodity whose supply has a major impact on all other portions of the economy and on the health and safety of us all. It’s supply should not be in the sole control of entities who are focused only on serving the needs of their shareholders and managers because those interests are often in conflict with the needs of all other stakeholders. When a company like Exelon ends up in control of an asset that was built with rate payer money under the old system of a regulated rate of return on investment and decides that it is more financially lucrative to destroy than to restore, I think it is time for a reevaluation of the system.
I am not saying there is no place for private interests in power generation or that everything should be publicly owned. (Heck, I have been a government employee – including both full and part time assignments – for 33 years. I know that government agencies can move quite slowly and that some public servants are not serving anyone but themselves.) I am sure that it is time for a new discussion about the balance between public and private interests in electrical power supplies. There is also a need for a better understanding of the value for the customers of building more capacity than is absolutely needed, especially when the new capacity has features that are not available in the existing capacity.
PBS Frontline – Public Versus Private Power: From FDR to Today
Disclosure: I have a small quantity of stock in EnergySolutions in my personal portfolio. I think that means that I might personally benefit if the contract to destroy Zion is actually exercised. I would prefer for that not to happen.