Tuesday, May 22, 2012

Too Cheap to Meter, Take 2:

Is Electricity Like a Buffet Table?

My last blog ("Too Cheap to Meter"), which I thought would be a quiet reflection on a statement spoken long ago, drew an unexpectedly vigorous response from several readers.  The responses were informed and thoughtful, and gave me some new food for thought.  Therefore, I decided to devote this next post to reflecting on what I learned from some of the responses, and what they may mean.

First, to put things in context, I want to reiterate that my last post spoke about a comment made by Lewis Strauss in 1954 when he was chairman of the Atomic Energy Commission.  Specifically, he said:  It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter.  Afterwards, several people in a position to know what was on his mind said that he was referring to fusion power.  One bit of evidence was that he had recently seen a secret experiment on fusion.  I myself, looking at the rather optimistic predictions in the rest of the statement from which this quote was extracted, saw it as an attempt to lay out a utopian vision of the future.

I further commented that the statement has been taken out of context to "prove" that nuclear power has failed to deliver on a "promise."  It is that premise that sparked the unexpected response.  I had comments on all sides of the issue.  Some provided possible further context for Strauss' statement.  Several pro-nukes weighed in and talked about "too cheap to meter" as a real possibility.  One even cites an area (Spokane, Washington) that had unmetered electricity in the 1920s and 1930s.

I will not attempt to recap all the great comments here.  I encourage all to read them if you haven't already.  They did get me thinking, and what I want to do with the rest of this posting is to go through some of the additional thoughts sparked by the comments:

"Too cheap to meter" doesn't necessarily mean free.  Most of us, when we hear the phrase "too cheap to meter," assume that means something is free.  If it's too cheap to meter, the cost must be inconsequential, right?  Wrong!  If Strauss had meant free, I suspect he would have said "our children will enjoy electrical energy as free as the air they breathe."  (OK, OK, I realize that air is getting to be a precious commodity, too, but that was in 1954!)

"Too cheap to meter" doesn't even necessarily mean cheap.  What some of the comments really brought home to me is that the most important words in this phrase are the words "to meter."  Strauss might have been talking about the marginal cost of electricity.  To be honest, we can't know that for certain if that's what he consciously meant, but if he really just thought that the electricity would be cheap, why did he add the words "to meter"?  Why didn't he just say, "our children will power their homes for only pennies a day"? 

In fact, as you can see from the comments on the last post, some pro-nukes today feel that "too cheap to meter" may yet be possible.  Their point is that the cost of metering may not be worth the effort.  By the way, this is also the case for hydro, solar, and wind systems, where the cost of the "fuel" is zero.  But this does not mean that the utilities would go into the business of giving electricity away.  They would charge a flat rate (or one of several flat rates, based on load).  I have not done a detailed cost analysis to try to estimate what kinds of rates utilities would have to charge under such a scenario, but I note that getting rid of metering wouldn't necessarily mean that electricity would be low cost.

The bigger question is to ask what are the chances that we would move to such a pricing scheme.  I think this would be extremely difficult in most areas in the near term.  One problem is a practical one--a majority of our electric power today is supplied by fossil fuels, which certainly have substantial marginal costs.  This would make it more difficult to establish flat rates for electricity use.

Furthermore, even a country like France, which has 80% of its electricity supplied by nuclear power, does not use a zero-marginal-cost pricing scheme.  My husband and I have lived in two countries outside the U.S., France and Japan.  Both of them actually charged electricity users two ways--by a flat rate based on peak load limit plus a marginal rate based on actual usage.

Laundry drying on Japanese balcony
In fact, when we moved to Japan, we found ourselves regularly tripping the circuit breaker in the apartment whenever we did the laundry.  The circuit breaker was set to limit us to a certain peak load.  It turned out that we couldn't run the (tiny) washer and dryer at the same time--unless we shut off all the lights and unplugged the refrigerator.  The solution was to either hang the wet laundry on the balcony and then stay home to watch it dry (it rains a lot in Tokyo, so if you leave the apartment, it is hard to get the laundry dry), wash and dry one load before starting another (which would have only one appliance operating at a time, but would require twice as long to get the laundry done), or to pay more to be allowed to draw electricity at a higher rate.

Furthermore, given the complexity of our current electricity system, with its multiple sources of electricity, and its significant reliance on natural gas for peak loads, any pricing system would have to deal with a mix of sources, some of which have more marginal costs of electricity production than others.  Therefore, any system we adopt might have to go to a dual pricing system such as I experienced in Japan and France.  Perhaps ultimately there could be other technological options that would truly be "not worth metering," but that would be hard to accomplish today.

Finally, I have to wonder if unmetered electricity would really be a good thing for society.  I think of the "all you can eat" buffets--and the rapidly expanding American waistlines.  (I know, I know--this from the person who paid more to use two appliances at once.)

Therefore, I think it is not highly likely that we are going to see truly unmetered electricity in the foreseeable future.  However, I am grateful to all who commented for the chance to clarify my understanding of this subject, and hopefully, to broaden the understanding for others on this subject as well.

In my own utopian vision of the world, perhaps there will come a time when we will be able to converse with someone from the past and ask, "What did you mean, Chairman Strauss, when you said electricity would be 'too cheap to meter'?"


Friday, May 11, 2012

Too Cheap to Meter:

What Did "They" Mean?

The request for this post comes from what you might initially think is an unexpected source--my husband, who is in telecommunications.  Over the years, he has heard me mention the "too cheap to meter" phrase, and in the odd ways of the world, he now now finds it applies in his field better than it seems to apply in mine.

He thought I had written on the subject and wanted to reference my blog.  When we both discovered that my only mention of "too cheap to meter" had been in a posting in August 2009 [!], in which I merely mentioned the phrase.  I parenthetically said that the interpretations now made of that phrase are wrong, but "that is a story for another time."  Well, almost 3 years later, I guess it is finally another time!  So I write the following account for my husband, and we will cross-link to each other's blogs.

The topic of "too cheap to meter" has come up so often during my career that I maintain a small file of clippings I've collected over the years pertaining to the origins and intended meaning of the phrase.  Perhaps the most telling indication of the persistence of the issue is that it is the one file I can always find easily!  There is absolutely nothing else in my office that I can put my hands on so quickly.

Of course, today, the information in the articles I so carefully tore from old issues of Nuclear News, or saved from newsletters, or carefully photocopied from library journals, is easily duplicated by a Web search.  For the convenience of readers, I will provide web-based references, but for my own purposes, I will continue to save the 25- and 30-year-old clippings that provide the background for some of the more recent material on the Web.

So, where did the phrase "too cheap to meter" come from and what was the intended meaning?  Most accounts date the first expression of this thought to Lewis L. Strauss, then Chairman of the Atomic Energy Commission, in a September 16, 1954 speech to the National Association of Science Writers in New York.  The statement was part of a somewhat glowing vision of the future that Strauss envisioned:

Transmutation of the elements, unlimited power, ability to investigate the working of living cells by tracer atoms, the secret of photosynthesis about to be uncovered--these and a host of other results all in 15 short years.  It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter; will know of great periodic regional famines in the world only as matters of history; will travel effortlessly over the seas and under them and through the air with a minimum of danger and at great speeds, and will experience a lifespan far longer than ours, as disease yields and man comes to understand what causes him to age.  This is the forecast for an age of peace.

I can only observe that we've only made the smallest increments of progress in the areas outlined by Strauss, and is some cases, no progress at all, so it is perhaps a big disingenuous of the critics of nuclear power to single out that part of the statement as evidence of the "failure" of nuclear power.  As others have pointed out, this is clearly a grand, utopian vision.  It is possible that Strauss was not thinking of any particular technology, just as he was not considering exactly how we would eradicate all disease.   

Furthermore, this is the statement of one individual, and was never endorsed by the AEC as a whole, any other government body, or the industry.  It is true that a statement by the head of an organization often is assumed to be an official statement, but that is not necessarily the case.  Today, when Commissioners of the NRC speak, they routinely point out that they are expressing their own views.  Perhaps in those more innocent times, Strauss did not think it was necessary to do so.  Yet, the criticisms leveled at the industry for failing to achieve electricity too cheap to meter are usually that "they" made this promise and failed to deliver.  

Even more important, most people knowledgeable of the circumstances at that time thought that Strauss was actually referring to fusion power, and not fission power at all.  Here, of course, things get murky, as the statement itself is ambiguous.  Perhaps that is deliberately so.  A number of accounts suggest that he was actually referring to the prospects for fusion.  At that time, there was a secret effort called Project Sherwood that was attempting to develop practical fusion power plants.

Obviously, because of its classified nature, Strauss could not mention it explicitly.  The groundbreaking for Shippingport had occurred only 10 days before his speech, so many people naturally made the assumption that Strauss must have been referring to nuclear fission. Yet a number of people who were familiar with the circumstances, including Strauss' son, Lewis H. Strauss and Kenneth D. Nichols, who served as AEC General Manager under Strauss, all are convinced that Strauss had nuclear fusion in mind when he made that statement.

It is harder to fathom his prediction of 15 years, but the extremely optimistic time period to me reinforces the impression that Strauss was mixing, perhaps intentionally, nearer and longer term visions of the future.  Certainly, the expression "our children" is often used metaphorically to mean future generations, and not literally one's own immediate offspring.

Yet another interpretation of the statement is that "too cheap to meter" should be interpreted as drawing a distinction between the fixed and recurring costs of energy generation.  Whereas fossil-fired plants have large and recurring fuel costs, nuclear power has a large up-front cost, but very small fuel costs.  Thus, conceivably, one could charge customers a fixed fee and not meter the actual usage at all.

My guess is that this is not what Strauss had in mind.  Furthermore, the operating costs of today's nuclear plants include much more than the cost of fuel, and I don't think any utility today would propose an unmetered approach to finance electricity production. 

However, this is just about what has happened in the telecommunications field as discussed today in our sister blog, SpectrumTalk.  It was not so many years ago that long-distance telephone calls were very expensive.  And difficult to make.  I recall that on our first trip to Europe, when I was waiting for a word from a potential employer about whether they wanted to hire me, I had to seek out a Post Office in Switzerland to place a call to the U.S.  (They did offer me the job.)  Today, we can all reach most of the world from any telephone, and most of us have access to services that allow us to contact people in many countries without a per-minute charge--i.e., too cheap to meter!

What is interesting about this comparison is that another utility, the telecommunications area, has evolved to a "too cheap to meter" situation.  This does not necessarily mean that the same scenario is as likely for electricity supply, but it does show that it is not impossible to transition from a situation where a service has high cost per unit of use to a situation where the cost per unit of use is truly negligible.

From today's perspective, the prospects in the electricity arena seem more tenuous.  Although the fuel costs for reactors are low--and fuel costs for solar or wind power are technically zero--electricity production probably inherently has more O&M costs than do telecommunications services.  Furthermore, in today's environment, where public policy encourages people to use energy efficiently, unmetered service would tend to have the opposite effect, so it is unlikely that we will see "free" electricity any time soon.

And yet, in 1954, no one in the telecommunications industry would even have predicted the low cost of telecommunications today, so as my favorite philosopher, Yogi Berra, once said, "It is hard to make predictions, especially about the future."


Thursday, May 3, 2012

Building Our Energy Future:

How to Plan in an Inconstant World

I was struck the other day by the report of another bankruptcy of a solar venture. I was not struck by the event itself so much as by the fact that it signals to me that one fundamental difficulty we face in building our energy future is that the landscape keeps changing around us.

In this case, the bankruptcy of Solar Trust of America is apparently the fallout of insolvency proceedings in Germany for its majority owner, Solar Millennium AG.

This is not an isolated event. All current nuclear projects are being questioned because of the low cost of natural gas. Everyone recognizes that the price of gas is unlikely to stay so low in the long term, but it is difficult to make a decision to invest billions of dollars in nuclear power plants that may not be economical for many years. Likewise, just as solar power projects seemed to be reaching a stage where the costs were starting to come down, China entered the market selling the same products at lower prices.

It's no surprise that energy is affected by a lot of outside forces. Many other commodities are as well. Food, clothing, gasoline, cars, appliances...you name it. In our global economy, we can be affected by events on the other side of the world--wars, droughts, floods, repressive dictators, terrorists, and foreign governments manipulating the prices or availability of exports.

What is at least somewhat different about electricity we are crucially dependent on an adequate, reliable supply of electricity. What is also somewhat different is that very large projects are involved in developing our electricity supply infrastructure, and they require substantial investments and long-term commitments.

I must confess that, until Solyndra went into bankruptcy a few months ago, I wasn't really aware that solar manufacturing facilities were receiving the same kinds of loan guarantees as nuclear power plants. I might have heard about it, but I probably thought they were for small sums of money. The mantra about solar power has been that it is small and distributed, and doesn't require the large investments that a nuclear power plant requires. The complaint about nuclear power had been that it was so costly that it couldn't stand on its own two feet--it needed government support.

But the truth is that both solar power and nuclear power are big businesses. Starting a new solar manufacturing facility, or starting a new nuclear power plant both require large investments over a period of time. And both can be derailed by unexpected changes in the marketplace.

Jim Rogers, the CEO of Duke Power, captured the concern when he noted that natural gas is cheap now, so everyone builds natural gas, yet it would be a mistake to have "all gas all the time." He argues for a balanced portfolio of energy sources that includes natural gas, coal, nuclear power, renewables and energy efficiency.

But the question is always how to get to that state when one source--natural gas--is cheaper today. Likewise, the question is how to build a domestic solar industry for the future when it isn't the most economical source of power today.

It is difficult to get anyone to think about the long term. It is an age-old problem. We need only think of the fable of the ant and the grasshopper.

Different countries have approached this problem in different ways. Some have 5-year or 10-year plans. Some have nationalized power generation and distribution systems.

In the US, we want the marketplace to work, but we are willing to use certain kinds of government intervention--support of research, loan guarantees, power purchasing agreements, etc.

So far, I think that we have used these measures in a short-term fashion, but have not fully faced the problem of how we will assure that we have in place a diverse, ample electricity generating capacity to be available when the price of natural gas inevitably goes up, when China raises the prices for its solar panels, or when any of a host of other unanticipated events around the globe suddenly increase the cost of a "cheap" energy source, or decrease the availability of an "abundant" energy source.

We need to get past our normal short-term thinking and consider how we can achieve an energy supply portfolio that will work in the longer term. I know that is easy to say, but much, much harder to accomplish. However, it is vitally important to assuring a future with adequate supplies of clean, reliable and affordable power.