Sunday, January 06, 2008

Energy In Illinois Intertwined

Over time I have noticed that as a story or trend continues the quality of journalistic reporting tends to rise. This trend is due to the fact that "generic" journalists who just try to tell a fact-based story with the human element thrown in learn about the subtleties of the situation that are not apparent on first glance, and the relations between complex topics that are not obvious. Sunday's Chicago Tribune moved forward on these fronts today.

The first article is titled "New Energy In Nuclear Power Supply Battle". This article had a cool graph showing the construction start dates for our nations' nuclear power plants, which started in the late 60's, spiked in 1968, and then had a smaller peak in the mid 70's, before dying out utterly in 1978. Our installed base of power went up until it reached 98,000 MW in the early 1990's, from where it has stayed fixed (since no new power plants have come on-line since that time).

While this graph is cool, the article totally missed another trend - that the "effective" capacity of these nuclear plants has grown immensely across this time period. 98,000 MW means that you have built reactors that could theoretically generate this much power; but this only happens if the reactors are fueled, on-line and continuously functioning (not breaking down). In the 70's and 80's, it would typically take weeks or even months to refuel the reactor; during those times, the reactors were down and not generating power. The utilities didn't really care, however, since the cost of "purchased power" from other utilities (most companies had interconnections with other utilities and there was spare power around) was just passed on to customers in the form of an immediate rise in monthly rates. The utilities only made money on the capital invested on the plant, a "rate of return" of usually 12-15% / year.

As power became more valuable, however, utilities really picked up the ball and increased the "effective" power capacity by speeding refuelings and limiting down times. Utilities that had maybe 1-2 nuclear power stations sold them off to other operators that ran them far more efficiently - no where more so than Illinois and Pennsylvania where Exelon now runs a whole fleet across two major ex-utility holding companies including plants they bought from others. It is this "effective" power capacity that has been holding the US supply (barely) in line with demand, and operators like Illinois should get credit for this.

Back to the article - the article basically says that there are huge expansion plans for up to 32 new reactors and if they were all built then there wouldn't be enough parts for everyone since the number of suppliers to this (moribund) new construction business is limited. While true, this is in reality not a problem since the number of reactors that will actually "break ground" will be far less than 32, probably very close to zero, for a variety of reasons. The US Federal Government is subsidizing nuclear power for the first few plants being built, and for this reason alone a couple plants might actually make it through the incredibly difficult process of designing, permitting, building, and making available for service.

There are 3 reasons why few if any plants will get built - one is mentioned in the article- that the price per MW is going to be very high. The utilities are saying that the costs are $3,000 - $4,000 MW, while the Moody's rating agency is saying that $5,000 - $6,000 / MW would be more realistic. While I can't judge the numbers because the technology being proposed is so different than what is in place today, generally the utilities always "get it wrong" on the low side so Moody's numbers are probably 1/2 way towards the eventual, much higher numbers.

The second reason, not mentioned in the article, is that there are no structural supporting mechanisms for the vast and risky expenditures needed to build these plants. In most states, like Illinois, utilities are not "guaranteed" a return on these plants, and financing will be hard to raise. Under the "regulated" model, utilities made an investment and were guaranteed a return as long as the investment was "prudent", but this mechanism is now gone. The utility would have to bear all the risk of cost overruns on the plant and raise all the money along the way. And after the plant was built, all it would do is generate electricity that would reduce the rates paid for their existing nuclear and non-nuclear assets (since there is a shortage now), so it would be economically suicidal even if it worked, unless the costs were so high that they drove UP the average cost of power. Unless the Federal government is picking up 100% of the tab or a huge portion through subsidies (which they might for the first couple of plants), then these plants won't get built.

The third reason, not mentioned in the article but well documented elsewhere in the Sunday Chicago Tribune, is that resistance from NIMBY's and greens will be ferocious and never-ending, and since our regulatory mechanisms for approval are already so broken and full of holes, they will be able to endlessly gum up the process until the utility (or energy supply company) just gives up and walks away. You can't get "final approval" on anything - you need permits, you need waste disposal, you need rights of way, there are studies to complete, and any failure real or imagined will be endlessly litigated through the courts. On top of this, the NIMBY's can also gum it up through the legislative branches to boot if the courts aren't bad enough.

A different article in the Sunday Chicago Tribune is titled "Farmers, Energy interests clash over pipeline plan". A Canadian company called Enbridge is building a pipeline to bring down oil across the state of Illinois from the coal-tar sands in Canada across Wisconsin and down into central Illinois. The oil pipeline requires rights-of-way from farmers in order to be built, and the farmers are balking at the price and demanding that the pipeline be re-routed off their land.

The pipeline is offering to pay farmers for the rights to their land at $6000 an acre, and trying to avoid going the "eminent domain" route to obtain transit rights. Some of the yelling and posturing might be just to raise the price, and that is probably a reasonable step for them to take as individuals.

The greens and NIMBY's are following the usual torturous path of citing every infraction that the corporation has ever made and trying to paint them as a corporate villain. Some of the incidents, like two workers getting killed during construction in Minnesota, were serious, but the rest seem to be minor infractions, and inevitable to some degree when you have a maze of long distance pipelines running across the country.

I know from experience that many of these citations are bogus; I worked on a "prudence" audit for a California pipeline where they made them reroute parts of the billion plus dollar pipeline (this was almost 15 years ago; it would probably be five or ten times as expensive today) because the environmental authorities found a fox den along the way... no joke. In the end the California company basically followed the existing routes of another pipeline to avoid entanglements and new NIMBY's - which was easier for them but puts everyone at risk since an earthquake or terrorist event would take out BOTH pipelines since their routes were right on top of each other.

The result of land holdouts and environmental reviews is that the pipelines zig and zag across the country, raising risk and costing much more to accomplish the same goals, since in the end the pipeline does get built after spending millions on lawyers and for piles of documents that (literally) could fill a small building. And for what? Enbridge is a Canadian company, the kind we should encourage, from a strong ally with an open government, not like where our oil dollars usually go, to a shadowy monarchy in the Middle East or some lunatic like Chavez down in Venezuela.

These two articles, while incomplete, do highlight the main trends in our energy space, particularly in Illinois:

- there are immense problems involved in building new generation (electricity) or expanding transmission (electricity and oil / gas)
- our legislative and legal processes are not up to the task of expediting these new projects
- NIMBY's will NEVER give up sabotaging and stopping them at every turn; their goal is obviously to build nothing, anywhere, ever. Negotiation with them or expecting them to compromise is a fool's errand
- people still fall for the "pipe dream" that someone announcing a nuclear plant is even 1% towards the goal of actually having a plant online, up and running

I do see some consolation that the overall discussion of these topics is getting more sensible and the journalists are inching towards understanding the root causes of these situations. Due to the fact that demand is still growing and supplies are far away, however, the overall situation continues to deteriorate.

Cross posted at Chicago Boyz

1 comment:

Jayhawk Ken said...

Here's another acronym that seems more appropriate than NIMBY for the current state of affairs with the various opposition groups:

BANANA - Build Absolutely Nothing Anywhere Near Anybody