Grid threats increase daily - from foreign foes, terrorists, criminals and hackers. Utilities are tasked with guarding against a rising tide of potentially disruptive intrusions into their power grid and electronic networks. What will it take to keep the power more...
Monday Jun 24, 2013
- Tuesday Jun 25, 2013 -
Philadelphia, Pennsylvania - USA
Data Informed´s Marketing Analytics and Customer Engagement provides marketing, sales, and customer support managers with the information they need to create an effective data-driven customer strategy. more...
We know you have something to say!
There is an immediate need for articles on
the hot topics in the Power Industry!
EnergyPulse, like no other publication,
also provides a means for our readers to
immediately interact with experts like you.
This short paper borrows from my forthcoming energy economics textbook (2011), and consists of a part of the lecture that I once desperately wanted to present at either the Stockholm School of Economics, or at the research organization called Centre for Business and Policy Studies (SNS), which is also located in the Swedish capital. The reason is that several years ago (together with the brilliant Norwegian economist Eirik Amundsen), the president of the Stockholm School, Professor Lars Bergmann, published an article with the provocative title 'Why has the Nordic Electricity Market Worked so Well' -- although in reality, practically from the beginning of deregulation, almost every newspaper in Sweden has expressed on its front or editorial page, or in its business section, the opposite point of view.
As for the SNS, this establishment once organized a conclave designed to sing the praises of a failed electric experiment, apparently hoping that their clients/audience had forgotten the time when Sweden not only produced the lowest cost electricity in the world (thanks to an exceptionally sophisticated electricity sector consisting of nuclear and hydro), but also sold that electricity at a reasonable price, particularly to the industrial sector. Needless to say, those individuals opposed to deregulation did not make the mistake of ordering new suits, shoes or underwear in anticipation of being summoned to wonderful Stockholm in the near or distant future, but when several of them heard that the curse of electric deregulation as experienced in Norway was referred to in a short article in Time Magazine by Wallace (2003), they made sure that a reference to that article found its way into my humble possession.
Insofar as Sweden is concerned, the present deregulated electric price is an unambiguous threat to many households, and perhaps ruinous for some. A blogger who calls himself INVESTOR pointed out on the important site Seeking Alpha that it is the most worrisome phenomenon in Sweden at the present time, since the Swedish macro economy is probably functioning as well as any in the industrial world. What we face in this country is not just a preposterous attempt to rescind the laws of mainstream economics, but the kind of lies and deceptions that electric deregulation made possible in California, and also in many other states.
For example, according to Kimery C. Vories, an official in my former home state of Illinois, the "fruits of deregulation" included price increases of 40-50 percent "all at once", lengthy electric outages, and increases in the salaries of the chief utility executives that ranged into the millions of dollars. He completed this catalogue of outrages by saying that "the role models of the corporate leaders of utilities in Illinois are the persons now serving jail time for their role in Enron's antics". Apparently they were unable to renew their licenses to steal.
When I was visiting professor and university fellow in Hong Kong, I gave a series of lectures on the shortcomings of electric deregulation, the last of which was presented at the Hong Kong Institution of Engineers during that marvellous period when the cracks in Enron's boisterous façade had begun to show. As Dr. Larry Chow, director of the Hong Kong Energy Research Centre pointed out in the discussion following this lecture, engineers could only shake their heads when they heard economists talking about deregulation, but at that stage of the deregulation swindle, that kind of mild physical gesture was far from enough to convince dedicated deregulation crusaders that they would be unable to succeed in their brazen attempt to make the impossible possible.
As discovered later, Dr Chow was not the only observer who came to suspect that a scam of monumental proportions was about to be unloaded onto electric ratepayers throughout the world. A California legislator who was the key instigator in introducing deregulation to that state, later joined Governor Davis in his efforts to protect California consumers from what the governor called "out-of-state-criminals" -- i.e. non-California generators (or wholesalers) who were in a magnificent position to utilize their (strong) oligopoly situations. Similarly, on the East Coast of the U.S., Senator Ernest Hollings brusquely abandoned the deregulation sinners who had seduced him into the ways of 'liberalization' and began to call himself a "born-again regulator". Quite possibly the senator noticed that as the smoke was clearing from the California meltdown, one of the old sayings introduced aboard some unlucky U.S. Navy ships in World War II began to apply: "When in danger, when in doubt, run in circles, scream and shout."
Running in circles will not help in the deregulation wars, because the issue is not gunfire or bombs, but money. A short time after deregulation in the UK, a page in the business section of a London newspaper displayed a gallery of power-company executives whom deregulation had catapulted into affluence. This observation might also apply to the major Swedish company Vattenfall. After deregulation its managing director -- and apparently a platoon of his subordinates -- shifted the focus of their activities to Germany, where they busied themselves manufacturing fairy tales about their intention to bolster the electric supply in all of Northern Europe, and to make it 'green' as well. The person to ask about this is an MIT graduate living in Germany, Jeffrey Michel, who first pointed out to me that highly polluting coal was going to play a key role in Vattenfall's business strategy. This is an important reason why Vattenfall did not protest the insane decision by the Swedish government to begin their nuclear retreat.
My previous energy economics textbook (2007) is filled with unpleasant facts about electric (and natural gas) deregulation, but as they once said in the U.S. Navy, "on every ship there is someone who does not get the message". In the case of Sweden, at the present time, that someone includes certain research establishments around the country that are paid to provide the kind of low-level economic research that is without the slightest scientific usefulness. They and the president of the Stockholm School of Economics have never ceased to praise the success of Swedish deregulation efforts -- a success that in a normal setting would only be acknowledged after the cognac had gone around the table a large number of times, because when in the grip of sobriety it is difficult to imagine an intelligent person voluntarily describing the Swedish electricity experiment as anything other than a grotesque mistake that has increased the financial burdens on households and small businesses, and even some large firms.
Let's wind this rogue's gallery of electric deregulation up with a statement by an important executive in the important Canadian state of Ontario. "Now before you ask whether I am still asleep or dreaming or had something extra in my coffee this morning," the chairman of the independent Electricity System Operator of Ontario (Canada) remarked several years ago, "let me qualify this by noting that I have not given a timetable to arrive at this destination", where 'this destination' included some problems with establishing a "reliable, efficient, effective, transparent, accountable, credible and competent supply of deregulated electricity." That, excellent readers, was only the beginning of her miseries, because on the date when the contents of Madame Chairman's morning coffee came into question, Ontario had less generating capacity than it possessed a decade earlier, and according to the president of the Association of Major Power Consumers of Ontario, a bungled deregulation agenda had resulted in that province losing an invaluable competitive advantage.
(2005) Amundsen, Eirik S. and Lars Bergman. Why has the Nordic Electricity Market Worked so well? Department of Economics, University of Bergen (Norway)
(2011) Banks, Ferdinand E. Energy and Economic Theory. Singapore, London and New York: World Scientific.
(2011). 'On the Sunny Side of the Nuclear Street.' Keynote Address: STOCKHOLM.
(2007). The Political Economy of World Energy. Singapore, London and New York: World Scientific.
(2001). Energy Economics: A Modern Introduction. Boston and Dordrecht: Kluwer Academic.
(1974). 'A Note on Some Theoretical Issues of Resource Depletion'. The Journal of Economic Theory.
(2001). Watts, Price C. 'The Case Against Electricity Deregulation'. The Electricity Journal.
(2003). Wallace, Charles P. 'Power of the Market'. Time (March 3)
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
I published at least the first part of this note a few years ago, but this version is considerably shortened. What I want of course is for people to understand that the curse of high electric prices (due to electric deregulation) is not over. The losers in Sweden are not just households, but also small businesses and even large enterprises. In fact one of the things that has kept the Swedish economy doing so well is the Chinese buying everything they can get their hands on in the way of e.g. energy intensive goods. Without that good country and its buying sprees, the Swedish macroeconomy could be in serious trouble.
Bob Amorosi 2.18.11
I completely agree with your message about the pitfalls of electricity deregulation. Here in Ontario we have a hybrid form of regulation where the wholesale prices of electricity paid to generators is deregulated, with massive price swings throughout the day as a function of aggregate demand and available generation. The retail price Ontario consumers pay however remains fully and tightly regulated, where our provincial government fine tunes the price every six months, to ensure all Ontario generators do not lose any money over the course of a year.
To further complicate the generation system in Ontario, the old crown-owned corporation Ontario Hydro (that owned all generation and long-distance transmission) was split up and partially privatized back in the 1990's. It had accumulated a massive debt load over decades to build our nuclear fleet among other things, which was really just public debt. During its split up and privatization, our provincial government of the day passed on this huge debt to be paid back by all consumers by adding a “debt-retirement” charge to our electricity bills. We are still paying it off today.
The resulting split up of Ontario Hydro created a separate transmission company, Hydro One (who also now owns the local distribution business for the city of Brampton and most rural customers), and many private generators. However a sizeable percentage of or our nuclear and hydro generation stations remained under crown ownership as a new corporation named Ontario Power Generation. During the period of 1990’s NO NEW GENERATION WAS BUILT by Ontario Hydro because it was politically unpalatable with voters to rack up further debt load. Ontario eventually lost its peak generation safety margins several years ago as total demand continued to grow. Since about 6 or 7 years ago building any new generators are paid for now by contract from our provincial government through what is called the Ontario Power Authority, using taxpayers’ money. The money is then recovered by regulated consumer rates being hiked to pay it back over a long time frame.
So you see Fred the competitive advantage Ontario lost is very much because of not wanting to spend more money on new generation, in effect to keep consumer rates low. The game Ontario is playing now is catch up, and we consumers will be paying dearly with massive rate hikes over the next many years, also in part to pay for hundreds of expensive renewables that the OPA has contracted to be built.
Ontario’s local distribution utility companies’ electricity prices charges to all customers are still fully regulated, but these companies are strapped to raise any extra money for investments in Smart Grid technology. Any technology investments must be regulator approved because they must be paid for with extra charges or rate increases to all consumers. This does not usually sit very well with voters at all, and I’m sure it is the same scenario in most places in North America.
My message is that price regulation should change so that while basic electricity rates could remain fully regulated, local distribution utility companies could sell additional optional services to customers willing to pay for them. Like Home Area Networks and messaging for in-home energy displays for example.This would allow utility companies to raise extra money from targeted customers to pay for technology investments without basic electricity rate increases for all customers, much like CATV or telephone company business models. Sadly this sort of regulatory reform is not even on governments’ or regulators’ radar screens.
Ferdinand E. Banks 2.18.11
Bob, voters, politicians, bureaucrats, academics etc etc are mystified by this deregulation circus. And why not? The textbooks dont tell economics students the kind of things that we learned about e.g. electric circuits. The average professor of economics is as ignorant about this topic as the guy or gal sitting in his or her local downing brandy or rotgut. When the crooks at Enron told the governor of California that deregulation would decrease electricity prices by more than 20 percent, the academic elite nodded their heads.
I got a letter from Argentina today in which it was pointed out that electric deregulation has created all sorts of problems. Damn right it has. My wife is the social type, and she is constantly meeting people in this country who are paying fantastic amounts of money to electric firms. Unbelievable amounts.
I don't know what happened in HongKong after I did my anti-deregulation song and dance there a decade ago, but after my first performance - which wasn't so hot - I gave the audiences something to remember me by.
Len Gould 2.18.11
All I know is that my electric bill (for a standard suburban house in Brampton, Ontario, Canada) has risen since de-regulation from about $65.00 / month to $200 / month. OPG, owner of 70% of Ontario generation, was at de-regulation limited as a government corporation to never make more than 4.3 cents / kwh (since raised to 4.9 cents), but on my most recent billing, electricity was costing me about 20 cents / kwh total, with taxes and "other charges" and supporting my local retailer's profit margins.
De-regulation as thus far implemented in Ontario is clearly a rediculous failure. But full regulation, as previously practised, was also a failure, since the government regulators simply placed rates arbitrarily low so their bosses cound get re-elected, then allowed the government owned utility to assign its resulting huge mounting debts to the government. That's dumb, sends too low a price-signal to customers, who should be properly encouraged to conserve.
The only workable solution is a) Private enterprise competitive generation and transmission b) monopoly regulated distribution c) every customer required to purchase their power on 15 minute intervals in the wholesale market.
Keeps government's grubby paws off, eliminates the completely usless retailers, provides customers the lowest prices possible.
I would be the first to agree that your IMEUC proposals could overcome the dismal failures of full regulation or full deregulation in past. However here in Ontario our provincial government won't even dream of changing the status quo because they can't imagine life without (their) strict control over our electricity system and all its stakeholders, even potential future stakeholders. To illustrate the latter, the latest government -led initiative came from the OPA last month when they put out a call for new project ideas for developing new and innovative Smart Grid technologies. They are budgeting $50million to pay for the ones they approve.
Clearly they realize the private sector won’t put up this sort of R&D funding for the simple reason the uncertainties and resulting risks are too great when the government, and not the marketplace, dictates all the commercialization rules. It’s almost like communism in weird sort of way, the only difference being no stakeholder or developer is forced to participate if they choose not to.
Ferdinand E. Banks 2.21.11
Comparatively speaking, things have gone well in Sweden during the global economics trouble, but for the large electricity generating firms, they have gone better than 'well' - a lot better. THEY ARE CLEANING UP!! Some smaller businesses, and of course a number of households, are fighting for their lives, while these large generating firms have never had it better.
The victims of these destructive electricity prices are of course standing around with puzzled looks on their faces. They can't figure it out. Their dumb economics gurus cant figure it out either, but at least they read that passage in their economics books which asserts that more money is better than less.
Jack Ellis 2.22.11
The government's answer to temporary shortages of generation in California during the 2000-2001 debacle was a massive building program. Today consumers and third-party suppliers have the worst of both worlds - consumers are paying too much for long-term contracts with third parties and utility-owned generation that currently exceeds peak demand by more than 30%, and independent generators that don''t have long-term contracts barely make enough to pay for fuel, let alone earning a return on and of their invested capital.
I understand why consumers who are accustomed to cost-based, inexpensive power from fully depreciated nuclear and hydroelectric plants are upset with a mechanism in which the wholesale price is determined by the marginal offer price. Part of the problem could be inadequate competition in the Nordic wholesale market - I forget now who owns how much of what. In California, the oligarchs were and continue to be the investor-owned utilities, who each control as much electric generation as all of their "unregulated" competitors...combined.
Is electric deregulation a failed experiment? Perhaps, but I come down on the same side as Len. The old system was never as good or as bad as it was cracked up to be, depending on your viewpoint. Competition has forced regulated utilities to be more efficient in may of the things they do, at least in this country.
Moreover, either competition, or a mechanism like Len's IMEUC would go a long way toward making better use of expensive assets that sit idle most of the time. Show me a competitive industry where factories on average operate at less than 50% of their productive capacity and I'll show you an industry where most of the competitors are insolvent. In California alone, around 15,000 MW of peaking generation sits idle for all but about 200 hours of the year, at an annual cost of several billion dollars.
David Barge 2.22.11
I'll take the opposite side and point out that most places that "deregulated" didn't exactly. They imposed a different regulatory framework than that which previously existed and in many cases took half-steps or the wrong steps.
California should never have "deregulated" along the lines of the British model. "Deregulation" also largely misses the point. The power industry in California in 2000 was regulated, and the market was regulated. It was badly regulated. Illinois' massive cost increases were more a product of hedge timing than "deregulation", and when they tried to put the genie back into the bottle they couldn't. Same thing happened in BG&E. With Illinois and BG&E, the fundamental point that is often overlooked (for example by their local legislatures and PUCs) is that those hedges would not have been on except for the mandate to transition to deregulation with price caps in the interim. Thus, the price increase would have been smooth, but to the same level. I know nothing about Sweden to comment intelligently about what is happening there.
In Texas, a place where they really can't put the genie back in the bottle, people are generally happy with the state of the power market. The ERCOT market is functional and provides people with a reasonable choice of power providers. It also helps that they are religiously committed to the free market for power in Texas, which I will grant may seem a little bizarre looking from the outside. In California now there is huge demand to move away from bundled utility service and to market based service (Direct Access). This is still happening in a PUC regulated framework, and in one that is not responding to the desires of the allowed entities to move quicker.
I am generally pro-Nuclear myself, but the argument that is compelling against Nuclear is that nobody in the free world, not even the French, have built nukes on time and on budget in at least the last ten years. Can the Korean's get it done for the Arab states so desiring? Maybe, the jury is still out there. I don't see why it would make a difference what regulatory framework in which you are dealing if nobody in the world can produce an example of a nuke getting built on time and on budget. Why not build Nukes in an energy market based on a long term reserve and ICAP requirement? That can't do any worse on execution and cost escalation than any fully regulated model currently out there.
Don Hirschberg 2.22.11
I am well past what the mortality tables have allotted me and I have never once had a complaint about my electric service or about the rates I pay. I know almost nothing about utility regulation – I have never had reason to learn. But I do know something about investing. I have been investing since I came home from the Korean War and had a couple years of Army pay to put somewhere (I had already spent 6 years in school, alas, my GI Bill didn’t yield me a dime..)
Finally to my point: I have owned about eight or nine electric utility stocks and not one was a very good investment. (Otherwise my investment record has been far better than the major averages.) So how is it that I hear so much about how utilities are overcharging the rate payers. We so often hear that we are being gouged by the fat cats, bureaucrats and politicians. Maybe so but whenever I have looked at how efficiently the plants are being run I cannot find much to criticize from an engineering standpoint – at least nothing gross, nothing that I would presume to have much effect on the dividend. And of the investor owned companies I have owned I thought these would have been the least able to screw their owners, the stockholders, or the rate payers.
This whole thread seems to be about the profound effect regulation/deregulation has on rates. Tell this naive Arkie how this can be? (I see where one Pulser said his bills have gone from $65 to $200 presumably due to regulatory changes? There was no mention of the cents/kWh.)
Ferdinand E. Banks 2.23.11
Everywhere I've looked, I've seen deregulation making fools of people. The basic way I approach this issue is that people have asked for it. Electric deregulation means turning a regulated monopoly or strong oligopoly into a deregulated monopoly or deregulated strong oiligopy, which in turn means that producers are in a position to fatten their incomes and make fools of customers, while their customers are in a position to take a fall. I doubt though whether this happens everywhere, but I am not interested in everywhere. It happens in Sweden and everybody wants to know what is wrong. The problem is that when you tell them what is wrong, they ask why dont the suppliers use gas or wind or buffalo chips or something like that.
Where this business of nuclear is concerned, and people being unable to construct facilities on time, and all the rest of it, I am totally and completely uninterested. I know what was done in Sweden, and I don't need to know any more. 12 reactors were constructed in a little over 13 years. I also know what was done in the US during the second world war, and if you put those two things together what you end up concluding is that they could easily construct nuclear plants on time if voters and politicians were not so dummed down by their TV programs, stupid politicians and academics, etc etc. People/voters dont want nuclear because they have been lied to about wind and solar and so on, and so we cant get the kind of commitments and strategies that we had during the war, when excuses having to do with extremely important things were generally not accepted.
Let me add one thing here. Try to explain nuclear and deregulation to people with advanced degrees in e.g. economics, and those people and the mediocrities who teach them look at you as if you are talking Swahili.
Jeff Mason 2.23.11
I agree with David. Most jurisdictions didn't deregulate they just tweaked the existing framework for their own motives. I'm citizen Joe weighing in here from Ontario and thanks to the dip in the global economy and the moderate weather over the years, Ontario is fortunately surviving our deregulation fiasco. Granted, unit prices have risen dramatically (more on the way) but that is likely to happened with a 80+ year old grid, plus the need for new generation to replace the current aging stuff and to build for increased yearly demand, renewed economic prosperity which drives demand and the need to proactively implement a bit of moral responsibility for green generation.
We either squabble about the deregulated markets, greed and profits, boom and bust cycles of capital infusion, construction cycles, manipulation with volatile prices or we squabble about the regulated markets, politics, waste, lack of transparency with subsidized prices. Since deregulation is not working in most locations I tend to support regulated markets; 1) the devil you know should be better than the devil you don’t and 2) if done proactively and sensibly regulated markets can avoid the huge problem of private capital investment in unstable political deregulated markets. It could be neither system is better than the other over the long haul. We just started with regulation and it's very fragile to change over.
With a switch to partial deregulation, change is accomplished. Change creates opportunity and ensures the movement of money, a fundamental driver in any economy, is it not? Change also gave our government a gift wrapped chance to recover a huge debt through the taxpayer as a result of the follies of countless informed well paid Hydro executives in a more politically pleasing manner. Side point: the debt reduction charge should be paid off by now but it is not. Why not. We all should be going ballistic against the reasons for this but we don't!
Don Hirschberg 2.24.11
I’m sorry, but when I think about the effects of regulatory changes neither Sweden nor Ontario pop into my head.
Over many decades and many regulatory changes the dividends paid to me (as an investor/owner) turned out to be less than I could get elsewhere. (And the much touted safety of REGULATED utilities was often given the lie.) While I would be hoping for regulators to approve rate increases people such as I were being vilified by politicians and the media as being those nasty villains gouging the public.
Ferdinand E. Banks 2.24.11
Jeff, you may not know about Sweden, but I know about Illinois, since I am originally from Chicago. In my new textbook I say a few things about what happened in Illinois, which wasn't anything nice, although I am basically interested in Sweden (where I live) and Norway, where the electric price became so outrageous that at one time people in designer clothes were out in the street demonstrating.
Consider the theory: Monopolies, or strong oligopolies, and marginal cost pricing means that with electric deregulation fools can be made of the voters, while somebody is given the opportunity to make millions or tens of millions. It doesn't happen everywhere, but it happens almost everywhere. You see, the main problem is that your economics teacher was too lazy to read and think about the last chapters in the econ book, where all of this is explained. When I worked in Hong Kong though, I didn't have to read any part of my econ book: everything that I needed to know was in a couple of issues of Fortune and Forbes, where they also spelled out the lies of Enron - lies about electric pricing falling at least twenty percent with deregulation..
Electric deregulation was a terrible idea, and in a country like Italy, where natural gas deregulation is in swing, that deregulation is worlse than terrible. Why not face the fact instead of making something that is very simple very complicated.
Len Gould 2.24.11
David B. says "I am generally pro-Nuclear myself, but the argument that is compelling against Nuclear is that nobody in the free world, not even the French, have built nukes on time and on budget in at least the last ten years." -- As usual, entirely ignores Atomic Energy Canada, who built two CANDU 6 reactors in China which started in 2002 - 2003. On time, on budget, 48 months from first concrete to first criticallty.
"Mr. Policyn said AECL anticipates having standardized piping, valves and components throughout the plant, not just the nuclear reactor, to simplify spare parts and inventories. He indicated that the first unit would cost $1255 U.S./kW and a final cost of $1055 to $1075/kW for follow-on units. The first unit would take 44 months to build, with subsequent units taking 36 months to complete. Mr. Policyn said AECL would offer fixed price contracts to prospective buyers, based on the company's success in delivering projects on or ahead of schedule with its CANDU 6 program in China, Romania and South Korea."
Ferdinand E. Banks 2.24.11
Len, according to Anne Lauvergeon, boss of Areva, the Chinese can now construct reactors cheaper than anybody in the world. She calls that "worrying". The claim that you cite above by Mr Policyn was probably wrong, but the point is that it doesn't make any difference. In a few years it is certain that AECL and everybody else who means business will be building reactors in 4 years.
Peter Platell 2.26.11
Hallo Ferdinand you really like planeconomy, Energy business is the most planeconomic business we have today in the western world and no kWh from a nuclear power plant would have been generated without planeconomic conditions. If one technology is brought to the market by intensive goverment support during decades and then derregulated it will be of course laughable. What the mankind need to do as soon as possible it to harness renewable energy and implement decentralised technology so we got out of this unflexible large centralised planeconomic structrure. peter platell
Ferdinand E. Banks 2.27.11
Hi Peter. It's like this, if the 'gentleman' who is organizing the international meeting of the IAEE this summer in Stockholm permits me to present a paper on nuclear energy - which is unlikely - it will be my pleasure to answer all your questions, as well as the questions of his other 'guests'. And I guarantee you that when you leave that seminar/lecture you will be a fanatic member of the NUCLEAR ENERGY BOOSTER CLUB
Don Hirschberg 2.27.11
Professor Banks, as a fellow Chicago-Lander I was I was piqued by your comment above, “In my new textbook I say a few things about what happened in Illinois, which wasn't anything nice…”
I don’t know what bad things you are referring to. I owned Commonwealth Edison and Illinois Electric Power. This goes back many decades and I remember Illinois regulators repeatedly denying rate increases for Commonwealth Edison that I very much wanted.
I eventually sold Commonwealth Edison as it was not yielding enough on my investment. Illinois Power was bought/merged into Dynegy which was then victim to the Enron fiasco.
Judging by your wording which implied there was some hanky-panky evolved. Other than stock holders getting screwed by politicians (via their agents the regulators) I was not aware of a basis for your comment. What did I miss?
Ferdinand E. Banks 2.28.11
Oh no - no sir, lieutenant. I did not say anything about hanky-panky, although that goes on all the time. What I meant was that the same lies about how wonderful deregulation was that were told in California, were also told - and apparently believed - in Illinois. According to Kimery Vories - or however he spells his name - the electric price went up by yea percent, and somebody or bodies in the executive suites cleaned up.
The California and Illinois stories seem to be the case just about everywhere. I talked to an American at a conference in Brussels and he had a roster of deregulation failures - or successes as they are sometimes called. It was pretty long. I suppose if you asked around you could hear some gruesome stories about electric price rises, but I have yet to hear anything that beats Sweden. Thank goodness my wife does not listen to me when it comes to buying electricity.
Don Hirschberg 2.28.11
Professor Banks, I tried to look into the gyrations of the regulation in Illinois of Commonwealth Edison after I had bailed out. What I found on the internet was a labyrinth of reports, agreements, regulatory and deregulatory changes and charges back and forth, board reports, citizen counsels, divestment of assets, hearings, and in particular and most upsetting the repeated involvement of posturing politicians and the Legislature. God knows I tried. But I think I know less than when I started, Alas, it is far too complicated for an engineer’s brain. I hadn’t realized just how simple making and delivering electricity is compared to deciding how much to charge for it - even when all the data are on hand.
David Barge 3.1.11
Len - Notice the specific crafting of my wording you quoted: "...nobody in the free world...". Even if it was the Canadian's building the reactors to Canadian specifications (particularly EHSS) in China, they were built in China. I would guess that if the Areva/Siemens consortium had built the EPR Finnish unit in China rather than Finland it might have come in on time and on budget. Building in China doesn't cut it for the "free world" by pretty much any reasonable definition.
From what I understand, there would be a lot of merit to the CANDU design being permitted in the US, however that is a long and painful process that nobody has yet undertaken.
Fred - You don't have a solution until you find a way to pay back the capital in the modern world, regulated or not. Therefore, what was done historically in Sweden is basically irrelevant.
I actually find interesting and agree with a lot of the content you post to this website, but you don't have a viable case when you aren't dealing with the world as is.
Ferdinand E. Banks 3.3.11
Unfortunately, somebody has decided not to speak English in this discussion. By somebody I mean of course David Barge. His statement that I dont have a solution until "YOU DONT FIND A WAY TO PAY BACK THE CAPITAL IN THE MODERN WORLD" is not English, nor for that matter "geechee".
The bottom line where this subject is concerned is the cost of electricity. Notice, I said the cost, and not the price. I can of course elaborate on that, although I dont think that I will until I am told that I dont know what is going on in one of the languages I read, prefereably English.
But I will give you a hint Mr Barge. The 12 Swedish reactors were constructed in 13 years, and once they were tuned up they produced the lowest cost electricity in the world. Note, lower even - on average - than the hydropower in Norway, because nuclear is not dependent on the availability of water. Now, the lowest cost can be turned into the lowest priced if the politicians in a country do not have an attack of the stupids, but in the case of Sweden, they had an attack of the stupids that several members of the academic elite - to include the president of the Stockholm School of Economics - called genius.
Let me conclude by saying that I will give you the same offer that I have given several persons over the last few years. Contact the ignoramus who is in charge of the department of economics at Uppsala University, and inform him that you want to set Mr Banks straight on the matter of electric deregulation, and could he arrange a seminar for your good self. Then we'll see whether YOU can deal with the world as it is, because according to a recent poll, the people in this country put the price of electricity ahead of unemployment as their main worry.
Len Gould 3.4.11
David: I realize you likely don't want to know this, but the "on time on budget" builds in China were primarily due to AECL's development of "open-top" construction where the roof of the containment is left off until after all the large equipment is delivered from outside factories and lifted into place, and their development of a new project management software which tracks every bolt and fitting precisely from supplier to final install, as well as standardizing of all possible parts.
Of course your heavy emphasis on "free world" is clearly a reference to the other advantage in China, where they aren't stupid enough to allow lawyers to waste half the budget on fignting absolutely pointless court cases, and construction interest costs due to legal gamesmanship. I personally think we too could achieve such a logical condition simply by declaring that "Once the decision is made by a democratic government to allow construction of a given facility, courts may not then be used to further hamper the process". Such freedom is only to be dreamed of though, I suppose.
Jon Wharf 3.5.11
David: Korean and Japanese reactors were also built on time and budget. Are they not the free world?
Malcolm Rawlingson 3.7.11
The track record of building nuclear power plants has been abysmal for a variety of reasons - there can be no doubt that is the case. There are a few isolated cases where power plants were built in less than the estimated time - Quinshan being one shining example of what CAN be done. However it is most certainly not the norm.
The reasons are numerous. Some are technical, some are project management related and some are due to the activities of those that just don't like nuclear whatever the arguments in their favour (which are many). But the finger cannot be pointed in any one direction.
The fundamental cause is simple. The design needs to be fixed and then the whole assembly subjected to mass production technology. if you keep building one-offs (bigger, better more things to go wrong - like the Finnish Areva experience) then you are doomed to repeat history. Nuclear appears to have not learnt a single thing from Henry Ford. Ford does not make any money designing and building a vehicle if only ONE is made. They make money by building many of exactly the same design. Why does any economist or engineer believe that the laws of mass production do not apply equally well to nuclear power plants as they do to cars or milk containers or chewing gum or boxes of Kraft dinner - the more you make the cheaper they are to make. A simple fact but entirely and utterly lost on the nuclear industry.
However - despite the myriad of monumental screw ups that have been made the great achievement is that price of nuclear generated electricity is STILL far less than any other. In France the massive investment has paid off handsomely and almost all French plants are paid off and generating a lot of money for the French Government. The investment is far less than the money the French would have spent on oil or coal (which they do not have any of and would have to import)
So while I agree with the criticism that the industry in general appears utterly incapable of building anything on time and on budget it is still the cheapest and most reliable method of generating electricity. Compared to wind at 14c/kW-h and solar at 80c/kW-h (Ontario purchase rates) 5c/kW-h from nuclear is a bargain.
The REAL question that must be answered is if we can produce for these low rates taking into account all the myriad of failures - how much cheaper COULD we produce it for if we get it right and apply mass production to the job. In Ontario an attempt was made at standardisation by building "4-packs" that is 4 reactors of the same design. The problem was that they were largely site constructed and assembled and did not benefit from mass production techniques. Plus each pack of four is completely different from every other pack of four so maintenance commonalities are virtually non existent.
So in closing there should be no single or pairs of orders for nuclear plant. They must be ordered and built in blocks of 10 and mass produced in factories to bring the unit price down to manageable numbers and minimise site assembly and construction.
Anything else is simply asking for more of the same. The Chinese will mass produce theirs and export them to countries without the technology. They will gain from the opportunity every nuclear nation in the west has completely failed to capitalize on.
Bob Amorosi 3.8.11
Right on Malcolm.
Mass factory production was adopted for very large natural gas turbine generators that are rated at hundreds of Megawatts, so why not nuclear too.
Ontario is facing massive electricity bill increases over the next fifteen or more years in part to pay for expensive solar and wind farms, and also because Ontario has recently delayed their plans to build more nuclear. The most recent bids for nuclear plants in Ontario were too expensive, so I suppose our provincial government now believes if they just wait long enough, the cost to build them will drop substantially when eventually they can simply order them from China off-the-shelf. If this is right, you can say goodbye to AECL Malcolm, they probably won’t stand a chance competing especially if they become privatized as the feds were planning.
Len Gould 3.8.11
I've heard (a rumour?) that AECL is already sold, to SNC lavalin financed by OMERS. If true, I guess that's the best we could hope for.
Michael Keller 3.8.11
Seems to me the fundamental thesis of regulation is that, in the absence of true competition, government bureaucrats are better at pricing energy than a free market. I think that is the recipe for higher costs owing to the government’s inherent bumbling inefficiency and penchant for being used as a vote buying mechanism for politicians.
Go back in time and look carefully at California’s “deregulation”. It was really nothing more than deeply flawed “re-regulation” by a bunch of socialists and politicians believing they could emulate the market place through manipulation. Utilities were forced to sell off generating assets. How that could possibly yield lower costs? Debt was incurred to buy the generating assets and that unquestionably leads to higher costs. Further, utilities were forced to borrow money so rates would not be raised. Pure idiocy.
I suspect the basic problem is that there can only be one set of power lines going into your house or business. While the Texas model may have merit, I believe municipal power may a more effective approach. Costs are inevitable lower (no profit) and the municipal is directly accountable to the local folks, as opposed to big utility executives who can not be dropped kicked over the side in the next election.
As to nuclear, just too dam expensive. Ditto for dim witted attempts to force “green energy” on the power generating business (which I strongly suspect is a major reason for rising utility bills).
Jon Wharf 3.8.11
Michael, I've heard some stupid ideas, but the suggestion that we should ELECT local power company officials has to qualify among them. You know how short-term thinking politicians are, and that's who you've got running your power provider in your scheme.
It doesn't agree well with your opening remarks about government, either.
I also don't see where you get the "inevitable" lower costs from. No profit doesn't necessarily mean lower cost. I suspect you're just expressing your anti-corporation feeling in the context of power generation, which also probably explains why you can't divide by the power output of an big power plant to see that an expensive plant can sometimes produce relatively cheap electricity.
Ferdinand E. Banks 3.9.11
You seem to be missing something here, Michael. Enron told the governor of Califoria and his flunkies that deregulation would lower electricity costs by - I believe - 20%, and that was that. He was too dumb to see how easy it would be to game the system once deregulation took place. The same thing has taken place in Sweden and Norway, and as far as I can tell it was worse in my old home state Illinois..
And what happened in Sweden was that once they deregulated, the largest power seller didn't protest the insane decision to close the two nuclear reactors. Some of the components of deregulation in California were absolutely and totally crazy, but as Jule Style said in 'The Man that got away1, "FOOLS WILL BE FOOLED," which applied to a lot of places and not just with electricity. Natural gas in Italy too.
Richard Vesel 3.9.11
Very good editorial, Fred!
I have tried to convince as many people as possible, starting with my own kids (now all young adults), that any person or corporation preaching or demanding "deregulation" is essentially asking for permission to do one or more of the following:
rape the environment raise consumer prices without justification absolve themselves from any form of socially responsible behavior avoid paying the true costs associated with their actions
All this in the name of "free market competition"...
Competition is not a bad thing, when confined to its milder forms. But just as in a simplistic analogy of sports, for every championship team (i.e. winner) there are dozens of also-rans (i.e. losers). If the (temporary) winner is an Enron or similar entity, designed to "game the system" that they helped to create, we all are the losers. The deregulation fallacy that was sold to Congress by the Skilling-led criminals will be with us forever, most likely, unless there is some incredible turnaround in the sound-byte thinking of the public which would demand a return to reason and regulation. What kind of event, or series of events would make that happen? Only apocalyptic ones, I am afraid...
Michael Keller 3.9.11
To suggest that Enron was the primary reason for California's failed experiment is not accurate, in my opinion. ENRON did not force the politicians to embark on their dim-witted experiment. Rather, the politicians were pursuing an ill-conceived path that was consistent with their underlying tendencies.
If you make the argument that regulation yields lowest cost because the government is in charge, then the door is open for exploring betters mechanisms for generating and distributing power thru some form of quasi-government entity. Municipal power corporations are just such a mechanism and these entities do, in fact, represent competition to private power. Further, the municipal operations are not subject to the full burdens imposed by the government regulators and are thus more directly responsive to their customers.
If you folks would do a little research, you'll find municipal power outfits in California that own their own generation do, in fact, have lower rates than their private counterparts.
Under the cover of regulation, Utilities are gobbling up their competition. For instance First Energy in Ohio, Pennsylvania, New Jersey. That leads to virtually no competition at all, except for a few municipal power companies. I am highly skeptical that the consumer is ultimately better off.
In my opinion, the idea of competition remains the best approach, with regulation an unfortunate band-aid remedy in the absence of a means to reasonably achieve a market based solution. However, I think Len Gould is on the right track in the sense that technology can ultimately cause energy to be obtained thru any of a number of competitive generators free to sell power into the marketplace. I would not, however, force the consumer to be subjected to the full brunt of the instantaneous market price of power generation. Rather, a composite average would seem fairer in the absence of the ability of the consumer select the lowest cost power distribution company.
Ferdinand E. Banks 3.9.11
The bottom line in the deregulation thing is the price of electricity, and almost everywhere that deregulation took place the price zoomed up. Shortly after deregulating in the UK one of the big newspapers in that country showed the pictures of the top executives of some of the generating companies on their front pages: all of those gentlemen had become millionaires. Professor Bill Hogan, who was a charter member of the deregulation booster club, couldn't understand why there were not more generators, but the reason is that with increasing returns to scale and very high entry cost, Econ 101 should have made it clear that more generators were suboptimal. What is so difficult to understand about that.
Everywhere, in every part of the world, electric deregulation has turned out to be a curse, though I am sure that there are some who escaped it. Sweden and Norway are rich countries, but even so people are/were being ruined by electric prices that should never come about. Of course, maybe they deserve it. After all, the two stupid wars that George Bush left for the present incompetent president could have been mitigated if the American voters had done what they should have done when Bush ran for reelection.
Richard Vesel 3.10.11
The primary involvement of Enron founders Lay and Skilling, in the lobbying of George W. Bush, in Texas, and in the US Congress, is a matter of public record.
PLEASE get real, and understand that money talks, in Washington, and in every State Legislature. In the energy game, there are ENORMOUS sums of money at stake, and the people who stand to gain the most from a particular form of deregulation will be putting the most expensive lipstick on the pig that they can.
I have a first hand recounting from a gentleman who testified before Congress in this matter of electric deregulation, when it was happening. A Congressman who was understood what was REALLY going on, and REALLY at stake, begged my acquaintance to put the consequences of deregulation in the plainest and strongest of terms, in order to try to get his colleagues to understand what they were about to do. Sadly, that message did not get past the lipstick...the pig looked too attractive, and they bought it.