Thursday, June 14, 2007

Railroad decline

Jason Said:
Illusion # 2Friedman refers to how President Eisenhower responded to the communist threat by building an Interstate system, which "enshrined America's car culture (atrophying our railroads) and locked in suburban sprawl and low-density housing," which all combined to get us 'addicted to cheap fossil fuels."

I am constantly amazed at how naive my southern bretheren can be (all NASCAR fanatics). Chattanooga was once the heart of the southeastern railroad industry, carrying food, cotton, livestock, all kinds of things to the northeast, and transshipping manufactured goods from the midwest to Florida. The rails were the "magic carpet made of steel" (remember "City of New Orleans" by Arlo Guthrie?). Now this system of rails, so energy efficient, has been neglected and allowed to decline. This is a tragedy, but may one day reawaken, if we are smart enough to see the energy benefits of rail. I'd say rail is about 10 times as effiient per ton/mile as trucks.

In the 50's the interstate system, cheap oil, and the luxury of personal transportation led to the replacement of rail cars with tractor trailers for shipment of goods. And I suppose this is a natural consequence of free market economics - service and price dictate who gets the freight. The railroads may be the most energy efficient, but the business model declined to the point where trucking could beat them on service and cost. My family benefited from this, trucking flowers all over the southeast.

If we are going to get serious about reducing oil use, for economic, political, and environmental reasons, we need to reexamine the rail network in this country, how it has been allowed to decline and be underutilized, and what we can do to promote the energy efficiency of this mode of transport. And, as Jason said in his book, don't forget that 50 or 60 percent of our electric power is fueled by coal, delivered in oil-fired diesel locomotives on aging rails. Our Arab trader friends still have their hands in our pockets - that oil from the middle east is 75% of the price of moving $6 a ton coal from Wyoming to plants east of the Mississippi that sells for $23.

The energy pipeline is getting longer and more global and we better look at how we can rescue the rails, we may need them one day. Ha, this is from a guy from Chattanooga "Choo Choo City" TN. God bless Glenn Miller, one day Chatta-boogie with be back on top.

Wednesday, June 06, 2007

The looming electricity rate shock

At a book signing event last night for Lights Out: The Electricity Crisis, the Global Economy and What It Means To You (Wiley, 2007), several people asked about electricity rate hikes. The two primary questions everyone wanted answers to were: 1) why are rates going up and 2) how high will they go.

Rates are going up now and going up rapidly for several reasons. One is that utilities are building new facilities to meet demand. The bigger reason, however, is that, especially in states like Illinois, electricity rates have been frozen for at least five years. Why? As part of the deregulation and competition program. Can you imagine the economist that would inject “competition” into an industry by forcing suppliers to freeze prices? Illinois isn’t alone, however. Many states did this. And now, rates are going up because we’re finally going to pay for the absurdities of most state deregulation programs.

Also, rates are going to go up because the power stations we’ve built over the last ten years burn natural gas which has gone up in price by five to ten times since these power plants were planned. And, for those who advocate more LNG-fueled plants, remember that as supply lines stretch and more and more LNG is imported, our electricity system--the foundation of our modern economy--will become increasingly vulnerable to similar price fluctuations and to the same kind of geopolitical influences that affect our oil supply. Personally, I don't think that's a very good idea. In my view, LNG should stand for Let's Not Go [There].

But there's an even bigger driver of future rate hikes looming overhead. Namely, global warming. As long as we're all consumers of electricity, we're all going to pay the price for addressing CO2 emissions that accompany its generation. And if we want to go to a low/no-CO2 emissions generation future, i.e. nuclear and renewables, then we're all going to pay the price for building new nuclear plants, subsidizing renewable projects, investing in energy storage and upgrading/lengthening our transmission lines to serve remote solar and wind farms.

When asked how high rates would ultimately go, I made an educated guess and said, "Higher than you think." Will rates double? Probably. At least in some places, and in others, they could go even higher. Are average rate payers aware of the sticker shock looming on the horizon? No.

Here's what industry CEO's had to say on the issue recently:

Public Not Ready For Cost Of Climate Change Fight, Say CEOs At S&P's Utilities Conference

NEW YORK June 5, 2007-- (Standard & Poor's, Writer: Robert McNatt)

Several industry chief executives at Standard & Poor's Annual Utility Conference, held in New York City on May 31, expressed the fear that one of the hottest topics in the power sector, global warming, was likely to become ever more contentious and difficult as consumers become aware of the costs of remediation. Those costs would almost surely result in rate hikes that could generate a regulatory and political backlash and have major implications for ratepayers, investors, and the utilities themselves. The five CEO panelists at the conference, "Will Surging Demands Jolt Credit Stability?" emphasized that the best approach to combating global warming would include a gradual phase-in of remediation costs for ratepayers who--despite the growing emphasis on renewable energy sources--are still likely to depend heavily on fossil fuels in the next dozen years. Finally, the panelists agreed that successfully reversing the effects of greenhouse gases will require serious commitments from governments, utilities, and industries in fast-growing overseas economies, notably China, which have become a rising source of carbon emissions.

Domestically, the full cost of reducing greenhouse gases is probably not yet apparent to ratepayers, said Thomas F. Farrell II, president and chief executive of Dominion Resources Inc., a major power generator in Virginia. "It will cost hundreds of billions of dollars and take decades to accomplish," he said. "It will have to include cars, be nationwide, and won't just hit electrical utilities." But consumers and businesses will have to be ready to contribute to the effort by reducing the amount of energy they use. "Before we leap to rate increases," said Ralph Izzo, chairman, president, and CEO of New Jersey-based Public Service Enterprise Group Inc., "there is a fair amount to be done in conservation."