White House Chronicle

News Analysis With a Sense of Humor

Wind of Change Challenging Utilities

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On Feb. 3, 1960 in Cape Town, British Prime Minister Harold Macmillan shook up what was still the British Empire in Africa by telling the Parliament of South Africa that “the wind of change is blowing through this continent.”

His remarks weren’t well received by those who that thought it was premature, and that Britain would rule much of Africa for generations. The British ruling class in Africa – the established order — was shaken.

But Macmillan’s speech was, in fact, a tacit recognition of the inevitable. It was the signaling of a brave new world in which Britain would grant independence to countries from Nigeria to Botswana and Kenya to Malawi. Britain would not attempt to hold the Empire together. His speech was seminal, in that Britain had signaled that things would never ever be the same.

To me, the appearance of investor and entrepreneur Elon Musk at the Edison Electric Institute’s annual convention in New Orleans was a “wind of change” moment for the august electric utility. It was a signal that the industry was coming to terms, or trying to come to terms, with new forces that are challenging it as a business proposition in a way that it hasn’t been challenged in a history of more than 100 years.

But whereas Britain could swallow its pride and start a withdrawal from its former possessions, the electric industry faces quite a different challenge: How can it serve its customers and honor its compact with them when people like Musk, who is the non-executive chairman of the aggressive company SolarCity, and a passionate advocate of solar electricity, and Google are moving into the electric space?

At EEI’s annual convention, Musk didn’t tell his audience what he thought would happen to the utilities as their best customers opted to leave the grid, or to rely on it only in emergencies, while insisting that they should be allowed to sell their own excess generation back to the grid. Musk also didn’t venture an opinion on the future of the grid — and his interlocutor, Ted Craver, chairman and CEO of Rosemead, Calif.-based Edison International, didn’t press him.

Instead Musk talked glowingly about the electrification of transportation, implying — but not saying outright — that the electric pie would grow with new technologies like his Tesla Motors’ electric car.

The CEOs of EEI’s board were ready for the press by the time they held a briefing a day after Musk’s opening appearance. They spoke of “meeting the challenges as we have always met the challenges” and of “evolving” with the new realities. Gone from recent EEI annual meetings was CEO talk of their business model being “broken.”

The great dark cloud hanging over the industry is that of social justice. As the move to renewables becomes a flood, enthusiastically endorsed by such disparate groups as the Tea Party and environmentalists, the Christian right and morally superior homeowners, and companies like SolarCity and First Solar, the poor may have difficulty keeping their heads above water.

The grid, the lifeline of U.S. social cohesion, remains at threat. Utilities are jumping into the solar business, but they have yet to reveal how selling or leasing rooftop units — as the Southern Company is about to do in Georgia — is going to save the grid, or how the poor and city dwellers are going to be saved from having to pay more and more for the grid while suburban fat cats enjoy their sense that they’re saving the planet.

My sense is that in 10 years, things will look worse than they do today; that an ill wind of change will have reduced some utilities to the pitiful state of Amtrak — a transportation necessity that has gobbled up public money but hasn’t restored the glory days of rail travel.

People like myself — I live in an apartment building — have reason to fear the coming solar electric world, for we will be left out in the cold. The sun will not be shining on those of us who still need the grid. It needs to be defended. — This column was previously published in Public Utilities Fortnightly.

Nuclear Power under Threat

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On the face of it, the nuclear power industry should be enjoying a boom, reveling in its extraordinary safety record and the fact that it is a carbon-free way to make electricity.

But all is not well in atom land. In fact, things are dismal. Only five nuclear plants are under construction, and they are having birth pains as schedules slip and costs rise.

One plant, Vermont Yankee, has been taken out of service and others are on a watch list. This is happening not because of safety or end-of-life, but because cheap natural gas is undermining the economics of nuclear.

The market has spoken and it has determined that gas is cheaper in the short term, and wind and solar, though limited, enjoy social acceptability and declining costs.

The mighty Exelon Corporation is trying to save three, and maybe more, of its nuclear plants with a political fix; arguing that nuclear is a value proposition – its value to the community will continue long after the gas boom has fizzled. It is an argument that might have been made to save commuter railroads in the heyday of the automobile.

But that is not all that challenges nuclear. Despite its environmental advantages in a time of climate change, the public has been steadily turning against nuclear, persuaded by a relentless campaign that has been waged by opponents like the Union of Concerned Scientists and Natural Resources Defense Council and by Japan’s Fukushima accident following an earthquake and a tsunami. Wrongly, it is believed this resulted in lives lost: Many lives were lost to flooding, but not to radioactivity release.

But the public has absorbed a fear of nuclear, unless it is associated with the Navy. That was reflected this month, when a Gallup poll revealed that only 51 percent now support nuclear, as opposed to a traditional divide of 60 percent for and 40 percent against. It is hopeless to expect a big swing to nuclear with this kind of public reaction. The current slim majority favoring nuclear falls far short of a call for action.

More, the nuclear industry has fair share of bad news of its own which does not help the public love the atom.

The San Onofre plant in California was closed down because new steam generators were defective, and the owners decided it was not worth the hundreds of millions it would cost to fix things. Cost overruns and delays, once blamed on environmental opposition, now are almost always a result of problems in the construction.

Much hope has rested on two new reactors being built by the Southern Company in Georgia. Known as Plant Vogtle Units 3 and 4, there are delays and cost overruns and the utility is in court with the prime contractor, the eponymous Westinghouse Electric Company. Although the Southern Company is determined to complete the reactors and under its feisty chairman, Tom Fanning, possibly to build more, the costs are rising.

Just a few months ago, there was hope that new reactors — smaller, mass-produced power plants — were in the pipeline. But now the industry is convinced the next reactor design will have to be developed outside of the United States; probably in Asia, where both China and India are working on radical new reactors, far from today’s light water plants — 100 of them — operating in the United States.

The U.S. challenge is not science or engineering – we have designs aplenty and great nuclear science – but regulation. The Nuclear Regulatory Commission (NRC) – which protects public health and safety — is not equipped to license a new reactor, and it is believed that a new reactor type would have to spawn a whole new regulatory bureaucracy. One aspirant with a new nuclear design says ruefully, “It’s as though the FAA had recertified every aspect of flying when the jet engine came along.”

The NRC, even its staff admits, is slow and ponderous. What they don’t admit is that the commission is not only protecting the public, by making sure that today’s reactors are safe, but it’s also preventing the public from having better nuclear power in the future.

For the industry the problem is not only the time it would take to bring a new reactor through licensing, but also the cost. The applicant, not the government, pays for the NRC to license a reactor. Some say that cost could run towards a billion dollars.

Considering this situation, U.S. leadership in reactor technology is doomed. — For the Hearst-New York Times Syndicate

Sorry, but There Are Areas Where We Need More Government

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Who is going to finance advanced drugs? Who is going to guarantee the electric supply in 30 years? Whisper this: It will be the government.
 
In these two areas and others, the risks are now so large that private enterprise — so beloved in so many quarters — can't shoulder the risk alone. When development risks run into the billions of dollars, the market won't sanction private companies taking those risks.
 
Drug companies, among the richest of corporations, are running up against the the realities of risk. To develop a new drug, the pharmaceutical industry — known collectively as Big Pharma — has to commit well over a billion dollars.
 
It is a long and risky road. A need for the drug has to be established; a compound developed, after maybe thousands of failed efforts. Tests have to be conducted on animals, then in controlled human trials. If the drug works, the developers have to get it certified by the Food and Drug Administration. Then they have to market it and buy hugely expensive insurance — if they can get it — because it is almost a rite of passage that they will be sued.
 
Under this regime complex diseases, that may require multiple drugs, get short shrift not because the developers of drugs are greedy, but because they honestly cannot afford that kind of research.
 
The result is that the pharmaceutical companies increasingly look to universities and individual researchers — sometimes in teaching hospitals — to find new therapies; research that is paid for by the government through grants from the National Institutes of Health (NIH), the Centers for Disease Control, even from the Department of Defense. Even so, drug research is lagging and NIH is turning down eight out of 10 grant requests.
 
In electricity supply, too, there is trouble ahead.
 
The electric utilities, since deregulation, have become risk averse. Only two utilities, the Southern Company of Georgia and Scana Corporation of South Carolina are building new base-load nuclear power plants. These may be the last of the large nuclear power plants to be built in the United States. They are both located in states where electric utilities are regulated and where they can anticipate their costs being recovered in the rates, even during construction. The states are taking some of the risk.
 
For the rest of the country, and particularly the Northern and Western states, deregulation has had an unintended result: It has increased the risk of new construction and in so doing has set the utilities down the path of least resistance. They have turned to natural gas and — because of subsidies and tax breaks — to wind power, which has meant more gas power has to be installed to compensate for variance in the wind.
 
Coal is being edged out of the market for environmental reasons. So the electric utility industry is being pushed into a strategic position it has always said it wanted avoid: over-reliance on too few sources of power.
 
A kind of gas euphoria has gripped the nation as supplies from horizontal drilling and hydraulic fracturing have shot up. When the 99 reactors now operating go out of service, as they get to the end of their lives, there will be nothing comparable to replace them.
 
Many companies, some of them small, are working on new reactor designs that would put the United States back into world leadership in nuclear, while answering criticism of the big light water plants of today. Most of them would even burn nuclear waste.
 
In a time of deficits, the government tends, both with new electrical generating systems and in medical research, to scatter money in the hope that this will lead to the huge private commitments that are needed.
 
Sadly, this creates a dynamic in which companies rush in to consume the seed money without being able to bring the product to to fruition. It is a push rather than a pull dynamic.
 
Government works well, even efficiently, when it establishes a pull dynamic, as in the space program and in supercomputers, or most military procurement. The Pentagon does not issue funds for companies to experiment with weapons systems: It commissions them.
 
The government may have to commission new drugs and new power technologies in the high-risk future. — For the Hearst-New York Times Syndicate



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Disruptive Technology Hits Electric Industry

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If you are reading this by electric light, you are connected to the electric grid Unless, that is, you are one of an infinitesimal number of home owners who installed solar panels.
 
The penetration of solar panels may be statistically insignificant today, but to the electric industry these panels, and other self-generating schemes, are like dry rot: a threat to the whole edifice.
 
It is not just those panels that are beginning to disrupt the electrical grid, but the whole panoply of alternative technology; wind, geothermal heat, micro-hydro turbines and scattered natural gas turbines all fit into a new category of electric generation known as “distributed generation.”
 
The change is so threatening to the investor-owned electric utilities and their not-for-profit colleagues in the public power sector that it has begun to dominate discussions on the Web and wherever utility executives gather.
 
Early this year the Edison Electric Institute (EEI), which represents the investor-owned utilities that provide 70 percent of U.S. electricity, issued a white paper discussing the disruptive changes that are beginning to threaten the old electric paradigm. The theme of change also dominated the EEI annual convention in San Francisco earlier this month, with CEOs talking about a “new business model,” although they were hard put to say what this will be.
 
The root cause of the problem is that the new entrants into generating treat the grid as kind of open marriage: there when it suits them. A home owner, might be self-sufficient in electricity, and even generate enough to sell a small portion back, to the grid 90 percent of the time; but during prolonged bad weather, or if the home system is down for maintenance, that home owner expects to flip a switch and go back on the grid. The local utility, all the while, has been standing by hoping to sell that home owner a few watts until the home system returns to power.
 
This applies even more so to large users of electricity, including factories and big retailers. Many of the factory customers generate nearly all of their own electricity already and big retailers are getting in the game. Walmart is covering its store roofs with solar cells. McDonalds has eyed self-generating for years, but not without the comforting assurance that the grid will always be there.
 
All of this distorts the financial as well as the physical infrastructure of the utility industry and produces social problems as well. Ted Craver, CEO of Edison International, the parent company of Southern California Edison, told the EEI conference that as California is “ground zero” for rooftop solar, you have to ask “are you creating a system of those who have means for self- generating and shifting the burden to the have-nots? It is a social fairness question.”
 
The system is also skewed, Craver noted, by subsidies for alternative generation. He called for a flexible system that allows for these new realities.
 
Another threat, according to Tom Fanning, CEO of the giant Southern Company, comes to the ability of utilities — one of the most capital-intensive industries is the world– to raise money. “Our industry raises about $90 billion a year and we need policies that support that,” he said.
 
There are other problems facing the electricity industry, which are cataloged in an amusing and readable book by economist Steven Mitnick, “Lines Down.” While Mitnick is more optimistic about the future of the grid than many, he says it needs fixing. It has been starved of investment and needs upgrading, particularly hardening against the storm outages that are standard in America but not in Europe, Japan and South Korea.
 
The future of the grid is not in the hands of the utilities alone, but also the regulators, federal and state, and politicians. That means that the new paradigm may be a long time in coming, while another aspect of the U.S. infrastructure deteriorates. — For the Hearst New York Times Syndicate

 
 
 
 
 
 
 
 

OMB Faulted in Nuclear Abandonment

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If you are heading north on the Chesapeake Bay, just above where the Patuxent River enters it, and you will see the Cove Point liquefied natural gas terminal and gas processing plant.

Journey on, about three miles, and you will see a superbly landscaped industrial installation that, unlike the gas terminal, blends into the cliffs of Maryland. This is the Calvert Cliffs Nuclear Power Plant, which has been making electricity quietly, efficiently and abundantly since 1975.

By contrast, the Cove Point terminal and gas plant has been a symbol of the vagaries of the gas market. Much of the time it has stood idle, with fishermen maneuvering their boats among its piers.

The terminal and gas plant were built when the nation was gripped by the energy crises of the 1970s, the Arab oil embargo and the Iranian Revolution. In reality, it has been seldom used and has been in and out of operation.

Until a week ago the Calvert Cliffs 1 and 2 reactors on the site, 55 miles from Washington, were set to get a sibling. Calvert Cliffs 3, a joint venture between Baltimore-based Constellation Energy and Electricite de France (EDF), the mammoth French utility, was to join the two venerable reactors.

But now there will be no Calvert Cliffs 3, according to one of its promoters, Constellation Energy.

The project has been canceled–strangled in its crib, if you like, by the White House Office of Management and Budget, which insisted on a sky-high fee in return for federal guarantees of the private commercial loans the utilities needed to finance unit 3.

By effective axing a new reactor, OMB was acting against the Department of Energy, Congress, and possibly the wishes of President Obama.

The nuclear industry and Unistar, the Franco-American company created to build Calvert Cliffs 3, say the fee was wrongly calculated and that OMB is contradicting the intention of Congress and the expressed hopes of Obama.

Two other projects are also facing cancellation over the OMB calculation for its loan guarantees. The utilities say the terms dictated by OMB are onerous, just too expensive.

Yet the industry can find no appellate route to overcome OMB’s stubbornness. The result is that the much-anticipated “nuclear renaissance” is sliding back into the dark ages. Only the Atlanta-based Southern Company has come to terms with the government and secured the loan guarantees it sought to build Vogtle, a two-unit plant.

Strangely, Congress and the Obama administration have declared the revival of nuclear power as national policy and money has been appropriated for loan guarantees. But both are seeing their desires frustrated by OMB and its formula for calculating the chances of success or failure for new nuclear projects.

Angered by OMB intransigence, the two partners in Unistar, Constellation and EDF, have fallen out. EDF wants to go ahead, despite the difficulties and possibly with French government money. It may have to find a new American partner because a foreign company cannot own a U.S. nuclear plant outright.

Adding to the agony of the nuclear reactor builders is the changed picture for natural gas. There is now too much of it coming to market for utilities to ignore the attendant low price. At the inception of the new wave of interest in reactors, gas was selling for $7 to $8 for 1,000 cubic feet (a standard measure in gas pricing). Now it is bobbing around $4 for 1,000 cubic feet, which means that utilities are tempted by the low capital cost of gas turbines.

The joker is wild–and the joker is natural gas, aided by the OMB bureaucracy.

The nuclear renaissance may be delayed again in the United States, but 58 nuclear plants are under construction in 14 countries, including 24 in China alone.

The Shocking Truth about Future Electric Supply

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TORONTO — “Nobody knows de trouble I see,” goes the Negro spiritual. It could have been playing as background music in Toronto, where the Edison Electric Institute (EEI) held its annual convention this week. Things are not terrible for the U.S. electric utility industry at the moment. But the industry’s future is more uncertain than it has ever been.

The challenge facing the industry is that we are using more electricity than ever before, with our bigger homes that have more appliances and gadgets. To meet future demand, according to Jeffry Sterba, chief executive officer of Albuquerque-based PNM Resources, the industry will need to spend $800 billion. Not only is it unclear whether it can raise this amount of money, in a time of constrained credit, but it is also unclear what expenditures public policy will sanction. Consider:

l The future of coal, which accounts for more than half of U.S. electricity production, is uncertain. It is the largest contributor to greenhouse gases, and the future promise of “clean coal” is yet to be realized on a large scale at an affordable price.

The second hope for coal, carbon capture and sequestration is a hot topic in electric utility circles. But David Ratcliffe, chief executive officer of Southern Company, confesses that it has been oversold, and it will be many years—if ever—before the technical and legal issues of diverting carbon dioxide and storing it by the millions of tons underground. The uncertainty has already caused 60 new coal-fired power plants to be canceled, according to speakers at the EEI convention.

l Nuclear power, a longtime favorite of utility executives, still faces public antipathy, and the cost of building the plants has gone up as the American engineering base has declined. The large steel forgings that are required for the construction of nuclear power plants can no longer be made in the United States. They must be imported from Japan at great expense.

Also the U.S. nuclear industry, thriving in the 1960s, has been sold off. Where once there were four U.S. companies that offered nuclear power plants, now General Electric is the only one, and it is in partnership with Japan’s Hitachi. The once mighty Westinghouse Electric is owned by Japan’s Toshiba. And the other vendor is France’s Areva. Only Ratcliffe’s Southern Company is sure that it is going to build two nuclear units. Other companies, including Baltimore-based Constellation Energy, have expressed interest in about 14 new plants—only about half of these are likely to be built.

The Nuclear Energy Institute reckons the nation needs a whopping 65 new nuclear plants to meet new demand and to allow for the retirement some of the more than 100 operating reactors.

l Wind is a bright spot. Wind power has proved more effective for most utilities than they thought, and they are now scrambling to find ways to store wind power as compressed air. But while the West and the North have good wind conditions, the Southeast suffers stagnant air at the time it most needs electricity: the summer. It is an energy option that is not open to every utility and because of its dispersed nature, it is not as manageable as a large coal-fired or nuclear plant.

l Then there is natural gas, which is the most desirable fossil fuel. In the past 25 years, the use of natural gas to turn utility turbines has grown exponentially, from 0 to 30 percent of generation. The trouble is that there is not that much indigenous natural gas around, and there are demands on it for home heating, cooking and fertilizer manufacturing, which are seen as higher uses than making electricity.

This has led to a boom in the import of liquefied natural gas from Asia and the Middle East. But James Rodgers, chief executive officer of Duke Energy, which is a large gas seller as well as a major electric utility, says that this is a dangerous route. By the time the gas gets here, after it has been liquefied and transported in an oil-burning tanker, Rodgers says it is only 20 percent less polluting than coal. Worse, he says this will harness U.S. electric rates to the global cost of oil and gas. That way he sees ruin.

Like their compatriots in the oil industry, utility executives talk a lot about technology coming to the rescue. But so far, there has been nothing that suggests a revolution akin to the one that transformed telephony is in sight. The only really happy thing here in Toronto is the realization that the plug-in hybrid car is coming, and that it will boost utilities’ revenues by recharging overnight when there is a surplus of electricity.