June 19, 2003
New Yorkís Energy Future: Looking Bright or Headed for a Blackout?
[START TAPE 1, SIDE A]
MR. STEVEN MALANGA: -Manhattan Institute and as someone who regularly uses at least three different personal computers, Iím afraid Iím an excessive energy user these days. Ah, three years ago at just about this time of year, New York City was facing what people considered a potential energy crisis. We are heading into summer and we were wondering whether the city was going to be able to get through the summer without serious power outages. One of the reasons for this, of course, was because the cityís economy was humming at the time. And it wasnít humming because manufacturing was expanding and manufacturing being a traditional high-energy user. But it was humming because New York City was undergoing and had undergone a transformation into an information-based, computer-based, service-based economy.
Ah, what a difference three years makes. So, weíre in a recession right now, um, weíre probably looking at whatís going to be one of the rainiest, coldest summers in years. Ah, more like a San Francisco summer probably. And so, as a result, there isnít a big discussion about the cityís energy future or even indeed, the regionís energy future. And I think probably, whatís most startling is that since 9/11, rather than the discussion being about what kind of power plants should we and need we build in New York, the discussion is now about closing a major power plant.
But weíve brought together three distinguished panelists, who consider the issue of New Yorkís energy future. And particularly, the issue of whether weíre doing the kind of planning that we need to do to keep the cityís economy growing and supplied with energy. Um, Iím going to introduce all three panelists right now and then, theyíll speak in an order that weíve designated. Ah, first of all, we have ah, Peter Huber, Senior Fellow at the Manhattan Institute and the author of other ground breaking work. Which many of you Iím sure are familiar with; including Hard Green, Galileoís Revenge ah, Liability.
Um, Peter is um, put on the old reading glasses there. Peter is now one of the founders of the Digital Power Group, along with Mark Mills, whoís also here with us today. And Peter is in some ways unusually qualified to discuss these issues because he has both a law degree and a PhD in Engineering. Right Peter?
MR. PETER HUBER: Right.
MR. STEVEN MALANGA: Ah and there just arenít many ah of those types out there. Ah, also here today is, Mark Mills, who actually, I think has a background as an Experimental Physicist, for many years as a consultant on energy matters, to the White House also to the Energy Department. And had an energy consulting business with the private sector also. And Mark is now, along with Peter, the co-author of the Huber/Mills Digital Power Report.
And finally, thereís John Dyson, many of you will remember him as the Deputy Mayor for Economic Development in the Giuliani administration and before that, New York State Commerce and Agriculture Commissioner. Ah, I think weíre going to start with Peter, right?
MR. PETER HUBER: While hereís a depressing prognosis to consider: ďThe energy future is bleak and likely to grow bleaker in the decade ahead. We must rapidly adjust our economics to a condition of chronic stringency and traditional energy supplies.Ē Those words were spoken in late 1979, by our first Secretary of Energy, James Schlesinger. And the conditions of course, were somewhat different then for a variety of reasons. But the consensus was that supplies were going to tighten. But it didnít really matter all that much or at least we would get use to that, because um, United States didnít really need much more in the way of additional energy. It certainly didnít need many more, anymore large electric power plants, for two reasons. Weíre talking 1979 of course. Deja vu.
Two reasons, one being that efficiency, that the improving technology would improve our light bulbs and motors and refrigerators and cars and so forth. And that would basically, take care of our supply, by reducing our demand. And the second of course, was that, renewable energy sources - solar and wind and so forth, were going to rise up and fill whatever additional energy requirements we might have. Our second option of course, was to burn an additional 400 million tons of coal a year, which is in fact what we are now doing, twenty-four years after that prediction was made.
Um, and itís interesting to survey or to recall how very wrongheaded much of the thinking was and has been historically about energy. Because it give us some picture of how we may or may not repeat the mistakes of the past. Um, in those 24 years, in fact, many of the premises that animated the comments of our first Secretary of Energy came true. Certainly the efficiency of just about everything we do, all our motors, all our engines improved dramatically since 1998. You cannot find in your house a light bulb, a compressor in a refrigerator or a motor under the, an engine under the hood of your car. You cannot find, or in the factories - the larger motors and engines - you cannot find one that isnít much more efficient by, by twenty or thirty or fifty percent or twice as efficient as the comparable um, um, bulbs and motors and the engines where two and a half decades ago.
So, the efficiencies came, I mean, just as promised, um, um, just as predicted. But all of that saving, notwithstanding, huge savings from all of this energy and not consumed. For all of that, we nevertheless, managed to almost double our total consumption of electricity during those same 24 years. We met half of that new demand by burning more coal, in absolute terms, we expanded coal fire to electricity, um, as much as all other sources combined in those twenty-four years. That kept coal share of our total electricity about constant, because demand was growing. And coal share is still, as it was then, just north of 50 percent, about half of every light and motor and every electric appliance you run is fired by coal, at least on a national average.
Um, um, and ah, ah, gas, the fossil fuel favored by most of the Green camp, then and now. Its share of electricity dropped quite dramatically for about the first half of this period and then, rose again back to about where it was. Right now, stands about seventeen percent of our electrons are now generated by gas. And if youíve been following the news, that is becoming a very serious economic issue, itís going to be particularly serious in New York, because New York is disproportionally dependent on gas-fired, um, power. But as you know, gas supplies are tight, itís very difficult to import gas, U.S. production has not risen, it stayed flat for a better part of thirty years. Thereís been some expansion of production from Canada, itís very difficult to import gas from further afield than that.
Meanwhile, in that same twenty-four year period, Uranium turned out to be, ah, ah, nuclear power turned out to be not quite finished after all. No new nuclear plants were commissioned or built during those two and a half decades, but nuclear generations still increased during that same nineteen eighty to two thousand and some period, from about eleven to twenty percent of our total power generated. Um and for two reasons, one is that they completed building a number of plants that were in the pipeline already, um, in nineteen eighty and those came online. And secondly, there were just extraordinary improvements, largely undocumented, but extraordinary improvements in capacity factors for the plants. The industry got very good at coordinating maintenance and safety issues and run times, basically, how many days a year youíre running, um, increased from roughly sixty percent to up into the eighties and still rising a little bit. There were other improvements of that type, but that was the main expansion of nuclear.
Meanwhile again, during this twenty-four year period, renewable fuels much touted um, attractive in many, many ways, made no visible bent whatsoever, on our electricity supplies during that period. About one billion Kilowatt-hours of electricity were produced from solar in two thousand, the last set of numbers Iíve checked. Thatís about 0.0003% of the U.S. total. Wind power did dramatically better than solar, rising as high as 0.1% of our total electricity. There were subsidies, tax breaks, mountains covered with windmills. Those are the actual numbers. And one can like them or not like them, one could wish for different, but thatís in fact what they are.
Um, ah, during the same period, we have learned increasingly, a number of fundamental things. First of all, curious, though it may sound, but a very heartening fact, is that, we are witnessing, what I think can be called, The Twilight of Fuel. Um, fuel cost matter less and less. Um, how can that possibly be true? Um, ah, the answer, basically is that the cost of energy, as we finally use it at the endpoint, it depends less and less on the cost of the raw fuel that is being used to produce that. This is not an easy story to tell, but by and large it boils down to this. Our economy is growing increasingly electric, at point of use, rather than burning a fuel or spinning a shaft, increasingly we are moving electrons.
And um, electricity, most of the cost of electricity, particularly so when you burn either coal or uranium, most of the cost of electricity is not embedded in the fuel, itís embedded in the hardware, the lines, the physical structure, the logic of the plant, if you will. Not, on the raw fuel thatís providing the heat within it. So, itís much the same by the way, as happened in the transportation sector. Um, itís not that gas is free or particularly cheap, but as you buy more and more fancy wheels and more and more of your mile dollar goes into the leather on the upholstery and the stereo system and so on, the actual cost of gas at the pump matters less and less for the transportation. Now, weíre seeing exactly the same trend but on a much more dramatic scale across our energy economy. And thatís a very positive factor, itís been absolutely critical to economic stability and growth.
During this same period, weíve witnessed in spades, the paradox of efficiency. There is not the slightest doubt we have made stupendous increases, improvements and efficiency during the last two and a half decades. And we will make the same again in the next two and a half decades. And never, not during that period, not during the century before, have these increases in efficiency correlated with reductions in total energy consumption.
Now, that seems terribly paradoxical, it seems self-evident that if you go and walk up to a light and unscrew a hundred watt bulb that is really consuming a hundred watts and screw back in an equally bright bulb that is only consuming ten watts, youíd think that is a net gain. And indeed it is a net gain at that time and at that place. But throughout history there are simply no exception to this. Improving efficiency of energy conversion technologies, and thatís what weíre talking about, has the net effect, the bottom line effect has been much more addition to our total consumption the it has been substitution.
I mean, just to put one example, but this plays out throughout our energy economy, the Dean Kamenís lovely Segway scooter, which got so much press, um, you know, six or eight months ago. And for all I know, he will sell a hundred million of them and Iíll be delighted if he does. Um, but I will bet you very good money that those Segways will not in fact substitute for SUVís as some people are saying. They will be loaded into the back of the SUV and driven to the mall, where people will then ride them around the mall. That just happens to be the basic mechanics of how our energy consumption works.
Ah, you know, itís always attractive in the short-term to say, you know, weíve stabilized, weíve peeked, weíve turned the corner. Pick your metaphor, light at the end of the tunnel or some alternative to that. The raw number are beyond dispute, energy consumption rises with economic output. There are no historical exceptions to that anywhere at any time in human history.
Um, at the turn of this century, the United States was consuming about seven quads of primary fuel, seven quadrillion BTUís of thermal fuel. By 1910, it was thirty-five quads, by 1950, it was a hundred quads. Um, um, and without doubt it will be a 120 or 130 quads within two or three decades from now. I mean, the historical trends are very powerful, likewise with electricity. We consumed about a 117 billion-kilowatt hours in 1900. We were about three times that, 334 billion kilowatt hours in 1950. We are at 3.5 trillion kilowatt hours per year today and absolutely no sign of that ever abating.
The only places energy consumption and particularly, electricity consumption in the modern era, turns around in the bates is when youíre actually getting shrinkage of economic output. There are simply no historical exception to that. We could write a book on that, in fact, Mark Mills and I have. But the fact of the matter is, [laughter] um, um, um, ah, you know, James Watt, who invited the steam engine I mean, which now accounts, keep in mind, for the burning of a billion tons of coal, give or take every year. The magic of the steam engine was, the Wattís steam engine, it wasnít the first steam engine. It was just way more efficient than the Savory engine that it replaced, okay.
And this tremendous improvement in efficiency made possible all the applications that then consumed all that additional energy. Um, um, when auto and diesel and the other turn of the century internal combustion engine people came along, the magic of the internal combustion engine was that it was so small, so compact, so light, compared with the steam engine. You canít put a steam engine in the car, but you can certainly put a diesel engine or a gasoline engine. And this wonderful, compact, light, lightweight device, of course and now consumes um, um, a very large fraction of our oil. These are the long-term energy trends, they are so fundamental, so forceful, so irrevocable that it is a grave mistake to try and make policy on the assumption that they are about to change. [applause]
MR. MARK MILLS: Let me begin also with ah, a deja vu all over again, in the words of a famous New Yorker, a quote from an energy pundit. ďWe can no longer count on our traditional fuels. Wood and solar power will become major sources of Americaís energy.Ē This was a forecast and pronounced in 1979, about the same time as ah, then Secretary Schlesinger made his [unintelligible] forecast. This one was stated by a very smart gentleman name, Bob Yurgan [phonetic], who is still very active in energy fields today. In a book called, Energy Futures. And in fact, it was the Harvard energy project book and it was unique in two counts.
One, it um, was full of energy forecast, all of which were wrong, which is quite an accomplishment to make in almost any forecasting arena. And I kept my copies, you can imagine, heavily imitated. And it was the only energy book to be a best seller, which is, Peter and I are hoping to rectify in the very near future. Itís an interesting position to start from though and Iíll get a little more specific in a period about fuels. What Yurgan [phonetic] was talking about were the traditional fuels then were, oil, gas, coal and to a very minor extent at that time compared to today, uranium. Those are the traditional fuels and that energy crisis period, which was right on the heels of the Ď73 crisis.
There was an orgy of studies on energy and what had to happen. And an enormous investment, not just in intellectual capital, but in our taxpayerís dollars. Iím looking for any and everything possible to power the economy, to do anything and everything possible, except to use coal, oil, gas or uranium. As Peter pointed out, just to reduce his statistics to a simple factoid, about ninety-eight percent of all new energy since that time period, came from the traditional fuels of oil, gas, coal and uranium.
One thing that we have learned and more specific to the topic of the day is that, weíve got another several thousand reactor years of experience on one of the newest traditional fuels, which is, nuclear power. Theyíve been running for a long time now, there are a hundred plus reactors with thousands and thousands of reactor years of deep experience. And frankly, some of the most ah, thorough engineers and operators that Iíve personally met and almost in a discipline outside of the, ah military, in fact, many of them as you probably know are ex military.
Thereís a remarkable institution that is widely viewed as more [unintelligible], as Peter pointed out, nuclear power fueled one fifth of all the economic growth of the last twenty years. And we also have something else thatís happened the last twenty years is, weíve run something on the order of thousands and thousands of terabytes of computer modeling on the storage of nuclear waste. And as a consequence of an enormous amount of effort and frankly, hundreds of millions of dollars of taxpayerís moneys being expended, the technical community is now more convinced. They were convinced twenty years ago, theyíre more convinced than ever that classified nuclear waste could be safely isolated from the environment for millions of years, because of the knowledge of the science and engineering and because frankly of the computer models.
So, I would propose to you a theory that Peter and I have concocted, which is, weíre now at a turning point and weíre at the turning point where the environmental community have as much at stake in nuclear power as all of us who are not part of the environmental movement. Weíre all environmentalist, we know how that debate works. I would say that because, well, first, would they believe these models, that nuclear waste can be safely stored? Because that frequently is the lynchpin, which is held up as the principle reason we should not proceed with adding more nuclear plants and building them again. Even though weíve increased nucleus contribution, we havenít built new plants, weíve just pushed the old ones harder and better.
What I would suggest to you that maybe, maybe and this is a maybe proposition, the [unintelligible] community just might believe these models now, because they believe in their own models. They believe in computer models that tell us that we can predict the climate of the planet for a hundred years. Iím going to tell you that if you look at computer modeling, computer models for the planetís atmosphere for a century are much more complex than anything anyone could begin to imagine to model things in the nuclear field. So they seem very comfortable with the accuracy of those models and I propose that they might get some comfort in the computer models related to nuclear waste.
In fact, they may well have to because let me lay out for you, the realities are rather limited. That their joint stake in nuclear power really relates to their core environmental interest, in all of our environmental interest. The computer models that they, um, and many others that are frankly on the margin on whether they believe global warming is real or not. Also tell us that we shouldnít burn many more fossil fuels. And indeed, those models suggest we ought to reduce fossil fuel consumption, we got to look for non-carbon ways of making energy.
As I pointed out, in the last twenty years, we havenít much success after spending billions of dollars. The orgy of building the lowest carbon energy source, gas, has ended. I mean, Alan Greenspanís testimony on June 10th, before Congress, was very clear um, we like to say, prescient because as Peter not noted, he and I wrote an article in Forbes Magazine in February that said essentially the same thing. The orgy of gas building is over to make electricity, because we donít have the capacity. In the near and relevant future, deliver the amount of gas those power plants would consume, were they all operated. Theyíre such a large source of marginal gas demand.
In fact, if they were all operated, the nationís natural gas plants would consume half of the nationís natural gas supply. Just as a benchmark, the nationís electric sector consumed twenty years ago, less than ten percent of the nationís natural gas supply. So, weíre not going to expand gas much in the next five to ten years of economic relevance. Coal, as Peter pointed out, was a large share of the new electric supply of the past twenty years. I am skeptical that the environmental community will embrace coal as the mechanism to expand electric supply over the next twenty years.
That leaves us with oil, which is used, very rarely, to make electricity in America and uranium and alternatives. Peter pointed out a couple of facts on where solar and wind are today, Iíll just give you one other benchmark. You all have read perhaps, this past weekend, the article in the New York Times Magazine, about the proposed Cap Cod Wind Farm. Itís the largest proposed wind farm ever for North America. They had a very nice two-page spread, an artist rendition of what the wind farm would look like offshore for all of the [unintelligible] of the wind farm, which include many embarrassingly from the environmental community, who are funding the law suits to stop this wind farm.
That wind farm would have to be repeated to two hundred times to match the growth in nuclear energy of the last decade.
MALE VOICE 1: Letís do it.
MR. MARK MILLS: Letís do it. Ha, ha, ha. Without addressing even the economic aspects of replacing nuclear power with something that is substantially more expensive. Thereís a great debate in the environmental community about whether that is the right way to go, I would suggest to you that itís not even economically viable to consider. Then weíre left, just very briefly, with the proposition that we should move to hydrogen economy. One could spend a long time talking about hydrogen, let me just say as a bottom line with my bias of a physicist, where I tend to look at, you know, what laws of nature permit. Ah, it isnít going to happen soon, if ever and it will be decades and we need to find new forms of energy in the near future for a growing economy. We have a nine trillion dollar economy.
I should also point out that hydrogen has an inconvenient characteristic, it ah, all of the useful hydrogen is tied up in one of two places on earth, as you probably know. One is in hydrocarbons, which is the proper word for, fossil fuels. Ah, you can strip the carbon out and throw out the useful part of the carbon fuel, with carbon and half hydrogen, which is about half of the average fuel value of hydrocarbons. Or you can try to get it out of water, where itís very tightly bound, because water is what you get after you burn hydrogen. So you can, in a sense, reverse the burning process with electricity and get hydrogen back, thatís a very energy intensive and expensive process.
In total, what we have and what Greenspan was pointing out, explicably and implicitly, is an economy, if you just look at the last decade and forecast the next ten years, you can see where we are. The last ten years, through a very robust economy, we had a GDP grow thirty-seven percent. The consumption of oil and gas in the economy over that time went up, not nine percent, but the consumption of electricity went up over thirty percent. The future for the next ten years will look a lot like the past.
In fact, let me propose a, sort of law of nature, itís a political law of nature, um, neither Republicans or Democrats will let the grid go cold. And since sixty percent of the GDP of the United States is dependent upon electricity, I think we can, conclude without too much difficulty that wishful thinking will melt away long before the ice caps melt away, when it comes to energy policy. The nuclear pieces intriguing one, itís a debate that Iíve been involved in, I think for about twenty-five years, maybe thirty years now.
But let me rap up with a couple of observations about energy realities. One is, why scientist and engineers pursue nuclear power in the first place and why it now occupies a place as one of the four traditional fuels for America? Itís really very simple and it has to do with physics of nuclear energy. And itís very similar to where I started with this quote that ďwood will become our next major source of energyĒ, at least that was in the forecast in the old, remember the old split wood, not atoms mantras of the seventies and early eighties.
Look, just to reduce it to simplest terms, it matters a lot when your energy forms or denses. Peter pointed out the internal combustion engine displaced steam because itís dense or smaller, more efficient. You get more economic value and you get lower environmental impacts on average and almost always as you pursue higher energy densities. The energy value of a quart of oil, just to give you this context of why nuclear power even began and why physicists and engineers chased it, a quart of wood weights about three thousand pounds, a real cord, not the, you know the face cord that the guys on the truck try to deliver to your house and tell you itís a cord. But a real cord of wood is three thousand pounds. To deliver that much heat from coal, you need about a thousand pounds of coal. To deliver that much heat from oil or gas, you need about seven hundred and fifty pounds of oil or gas. To deliver that much heat from hydrogen, itís a very dense fuel when itís compressed, you need to have about two hundred and fifty pounds of hydrogen to get the same. To deliver that amount of heat from uranium, you need 1/100th of an ounce. [laughter]
This is the inherent, that in fact is the entire reason that nuclear power was pursued and is being pursued all over the world. Look, let me make a forecast end with a forecast what the next five years will look like, based on energy and the economic realities. Weíll burn more gas. We will because weíll have to because the grid wonít go cold and weíll pay more for it. Weíll probably burn more coal, weíll push the coal plants harder and burn more coal pushing them harder. By harder, I mean, running them longer, more efficiently, retrofitting, re-skinning. Weíll probably increase the oil burn to make electricity in the United States for the first time in twenty years. Because many of these gas plants are duel fueled.
They were actually at the point where, which very rarely occurs and which Greenspan now research what will be permanent for at least five to ten years, where the spark price, that is the cost of gas will stay frequently above the cost of oil. Which will motivate dual fuel utilities to burn oil to make electricity, which was and has been in America since the seventies heresy. And I will predict, we wonít shut down nuclear plants, the critical decisions that we make wonít be whether to shut down nuclear plants. Over the next five years, the critical decisions will actually be, whether or not to finally put the United States back on the track to use its technological mite to build one of the most remarkable forms of primary energy, which are the nuclear plants of the country. Thank you. [applause]
MR. JOHN DYSON: So, here we have the irony of ah, national news focused on whether the Iranians should be allowed to build a nuclear generating plant in the city of the largest deposit of fossil fuel in the world and also, the center of natural gas, which canít be moved. And at the same time, we are talking about closing the Indian Point facilities here, the farthest away from the domestic or international sources of these alternative fuels. This is not, ah, to those of us whoíve been involved in the administration at the state or city level, an unusual position for New York to be in.
Our political system, continuously creates a set of dysfunctional decisions that we then have to figure our way out of, those of us who insist on having a responsible public policy. Ah, Iím going to talk about a few of these matters, youíve heard some very interesting overview from the two previous speakers. I want to start with Dysonís law of economics, which is immodestly put as, without electricity, all of those silicon chips are just sand. And in this town, which depends on financial services and other kinds of services, more than anything else. And is at the headquarters ah and the nerve center of the international communications world, for news and for financial data and for a lot of other things.
For us to have even an irregular supply, a lumpy supply of electricity would be a disaster for the economics of the city and of the state. We need not only a good supply, but we need probably the most regular and predictable supply of any city in the United States, arguably, any city in the world, because we are at the crossroads of all these data communication systems. What we have instead is a system that is continuously at the edge of disaster. I can tell you having been the head of the New York State Power Authority for six years, which for reasons that escape almost anybodyís rational understanding, were not included in the list of the reasons I was invited here today. [laughter]
Ah, I can tell that nonetheless, ah, we fuss with these issues over and over. In 1982 and then 1983, more intensely, ah Governor Cuomo said to me, ďWell, we got to close Indian Point 3,Ē which the Power Authority of the State of New York then owned. And I said to them finally, ďWell, you know, itís still going to cost ten cents on the subway fairĒ and this and that and the other thing. In those days, ten cents on the subway fair was a lot of money, roughly equivalent to fifty cents today. And I said, ďI just want you to know Governor, this is not going to be Dysonís dime, this is going to be Cuomoís dime.
And that led to quite logical approach to finding evacuation plans and a lot of other things, which allowed those plants to operate from more or less 1983 until now. Ah, they ah, are still ah, absolutely essential, the fact that this discussion could go on by people who pretend to be self-interested or not self-interested rather, but to be interested in the future of the city and state of New York ah, is really a sign of the poverty of the public dialog. We have a summer margin in this state, statewide of 331 megawatts. And I know they blizzard you with numbers, but just pay attention to this little bit for a minute.
331 megawatts is the statewide extra capacity. 51 is the New York City extra capacity, 483 is the Long Island one if they let them use the cable. Indian Point is 2000. So, you take away two thousand from 331 statewide, you have a continuous system of brownouts, rollouts, blackouts, everything you can think of in the electrical system of the city and state. And it makes it impossible for a major company in the news gathering business or in the financial business, to remain in the city of New York.
We still have most of the communications headquarters here, we still have ah, virtually all of the major banks. We still have all the stock exchanges, the clearinghouses, on and on and on. They all rely more and more on these computer chips that otherwise will turn into sand. So, to even consider closing them seems to me to be beyond belief, beyond a process of taking such arguments seriously. However, I was asked also to give you an idea of what the finances would be. In a certain sense, I donít think theyíre calculable, because itís very hard to know two aspects of this.
One is, how many people leave because they are worried that the political system of the city and state, which are often dysfunctional items that can be made emotional like this? They just leave or donít come but I can tell you, if you close Indian Point, there will be a rush for the doors. I have been in and out of economic development for the city and state for twenty-five years. And I think I can tell you as much as anybody, I know what Iím talking about.
The second issue is almost impossible to measure is, what are the social consequences of blackouts? We had two famous ones, first one of which ah, was not quite so bad; the second was very bad. And we had, while I worked for Mayor Guiliani, one in Washington Heights. And we know that cost a lot of money, both the Con Ed and to the people there and then, overtime for the city. So, I made an estimate of this and if you care to write them down, Iíll tell you the components.
Ah, removing the jobs from the employees who use to work at Indian Point, taking the various economic effects together, I think is about three hundred and fifty million dollars a year. Replacement energy cost are at least 1.2 billion, thatís twelve hundred million. Ah, with gas prices going up and oil prices going up and the consequence of this world weíre in, thatís probably a very low estimate, looking forward. Reliability cost, which I take to be the people leaving and the outages is five hundred million. I think thatís probably a very, very low number as a consequence of closing Indian Point.
And then, I did replacement investment on capital cost, which Iím assuming youíve got to build plants somewhere and that whoever is paying this electrical bill will be paying for those new plantís capital cost, adds another hundred and fifty million, assuming that you pay a three billion dollar investment off over twenty years. That comes out to, $2200 million dollars per year. And as I say, not really counting the social chaos and not really counting the people moving out because of not being able to run their silicon chips. These are daunting numbers and people can say, ďOh well, but theyíll be replaced by something elseĒ. Well, this state no longer has a siting law to site new plants, which was passed and amended over the years. Itís expired, the legislature is in the usual gridlock.
Albany, if you go up there, it always reminds me of being in the Far East. You see all those Buddha dolls with the hands going like this, theyíre all pointing at each other as usual and nothing is being done to replace that. But if something could get done, the independent system operator of the state, ISO, thinks we ah, ought to be able to have ah, some big substantial number of plants. Their numbers are, that itís possible, with all those that are existing now being considered could be finished by 2006. That would total, 2340 megawatts.
But we are nearly certain we need 7000, so thatís about a third of the total needed, even if all the plants currently in the process got built and there are a lot of obligations in the way, obstacles rather, in the way of getting them built. In the city, we have a grand total of 910 megawatts being considered and we need at least 3000. So again, thatís roughly a third. Ah, the Mayor has announced, he is opposed to the new gas plant that was supposed to be built in Brooklyn. People always come up with inventive reasons when they are Mayors of the city of New York to oppose plants. Those of us at the Power Authority tried to build one on Staten Island are familiar with the quite imaginative arguments. At the time, the Mayor said he was going to save all of that extra energy by eliminating toasters and electric can openers. [laughter]
And this passed for a thoughtful commentary, you know, itís really extraordinary. In addition to that, of course, the city has very real transportation bottlenecks, so if weíre talking, as the title here says, ďWhat are we doing about New YorkĒ? If you take New York as the city, ah, getting the energy in here, if it isnít generated inside the city, is extremely difficult and unreliable. Beyond that, we have a whole other set of obstacles to create a new generation, which came out of the Enron debacle. And this is about the change in the system, which the politicians never even talk about. Which is, in the past, you build a plant and you had a guaranteed rate of return; it was in the rate based of some regulator. You could get the money back.
The power authority operates by selling bonds, municipal bonds; it sells its electricity at a wholesale price. Curiously enough, although itís owned by the state, itís the only agency in those days that was actually in the market. We had to sell lower price than somebody could buy it for elsewhere in order to be paid and in order to get the bonds paid off. But that system had a kind of logic, it had its problems, but had a kind of logic. We have thrown that all away now, there arenít guarantees to anybody who builds a plant. Yet youíre asking people to undertake a costly licensing process and add on top of that, an unknown fuel component and have them, as independent business people, unrelated to a utility. Have them undertake an investment of a billion dollars or even two million dollars to build a new plant or to build some transmission line from point A to point B within the state of New York or to the state of New York.
And I submit to you that no rational person in Wall Street will finance such a thing. And I donít think anybody, with their equity at stake, will build such a thing. And we are going to either have to reenergize the way NIPA operates so that the state and city of New York will have somebody who is the constructor of last resort of these plants, whether theyíre gas or nuclear or oil, matters less to me then that they exist. And the transmission lines need to be built too. Then, the last several of these have been built by the Power Authority, which is a sort of shell of what it use to be under the current administration.
So, ah, adding all of these things together, including the environmental effects and the future of our city, it seems to me the question, ďLooking bright or headed for a blackoutĒ? I think weíre headed for a brownout. And I think the politicians will arrive at the idea they got to do something, after the brownouts start to be steady and continuous. And if they get there ahead of that, Iíll be very surprised and in a pleasant kind of way. [applause]
MR. STEVEN MALANGA: Weíre going to start with questions and ah, just one thing, ah, I think we do have a hand microphone around here. So, when I call on you, um, wait until the microphone comes and please identify yourself. But Iím going to start first, letís bring it home to New York City. Even as we hold this conference today, we read in the papers that he administration announced, the Bloomberg administration announced a plan, a rezoning plan for the Brooklyn Waterfront, which is, in a fact, a way of um, ah, proposing something very different so that an energy plant that is suppose to be built there does not have to be built there.
And clearly, the administration ah, opposes this kind, you know, the project. Given the ah, the ah, problems with transmissions into the city, there doesnít seem to be a solution except to build plants in the city. John, is there any way, whatsoever to muster political support for building plants within the city? Because no one seems to think weíre going to build another transmission line to transmit power into the city.
[END OF TAPE 1, SIDE A]
[START TAPE 2, SIDE A]
MR. JOHN DYSON: [off mic]
MR. STEVEN MALANGA: Go ahead, John.
MR. JOHN DYSON: Is that better now?
MR. STEVEN MALANGA: Yeah.
MR. JOHN DYSON: Well, I think the politics is always difficult in New York unless it becomes a crisis, to be honest, Steve. Ah, there is the possibility of putting together, I think, with business and labor ah, enough of a coalition that somebody would lead the battle. This ought to be done by somebody like, the Partnership for New York or the Association for a Better New York or something like that, they could bring together business and labor. To make the point that, um, even the prospect of unreliable electricity is extremely damaging to the cityís economy, which relies on financial services and the other communications industries that we have in the city.
Even the prospect of it drives people away and they build a new facility in North Dakota or North Carolina or some place outside of our financial grasp. And ah, the labor and management together have often done extraordinary things in this city and state. I had to work for Governor Kerry and saw him the other night for dinner and reminds me that there was a time when these things could be done. The city has for many years however, taken the view that all these dirty things ought to be up river, literally. And the last big plant was built in Athens, New York and that is a sign of where the politicians of New York City thinks that things ought to be.
The right answer is that probably eighty percent of the generation ought to be within the city limits. And so, as you grow the needs, youíve got to find some place to build these things and you run straight into, nobody wants it in their backyard. Which is, all the more reason the state must have a siting law, so called, article 10, passed again. The Governor, you need to tell the Governor and your state Senators and your assembly people that this has to be done. And whether it expired, it almost condemns us to brown.
MR. STEVEN MALANGA: Just continuing along the lines of our political leadership here in New York state, the Westchester legislature and the Westchester County Executive have proposed potentially buying in the endpoint, the county would buy in the endpoint, shut it down and build new, non-nuclear facilities to replace the energy. Ah, would anyone like to comment on what the cost or likelihood of that actually occurring?
MR. JOHN DYSON: I think the likelihood is remote, but the cost I can tell you of having done this number, is everything I said, minus the three hundred and fifty million loss from the employees no longer being employed. If you assume youíre going to reemploy the same number of employees, itíll only cost one billion, eight hundred and fifty million. So, the taxpayers of Westchester, who I presume are not going to ask the rest of us to subsidize their foolishness, right?
MR. STEVEN MALANGA: Yeah.
MR. JOHN DYSON: So ah, itís got to be, Westchester is going to raise their taxes by 1.85 billion a year. I have no idea how much taxes are in Westchester, but even there, that would be quite a difference, having grown up in Westchester, I would say.
MALE VOICE: Itís useful perhaps just to point out a piece of physical reality at replacing two thousand megawatts of [unintelligible] capacity with something. Ah, would presumably be gas, because thatís the favorite fuel. But that much gas going into that location, versus no pipelines, so youíd have to build pipeline. That much gas capacity would suck all of the New York gas pipe system dry the second you fired it up. Thereíd be nothing left to heat homes or do anything anywhere in the lower part of New York state, itís a lot of gas.
Windmills would be silly and embarrassingly goofy. But you could ah, in theory, build them so they strung out into the Atlantic for a couple hundred miles. And the size of the Washington Monument, Iíve done the calculation for two gigs, my recollection is, you put a row them, sort of ten across each Monument door; much bigger than the Statue of Liberty and just as far as the eye can see and then some. And that ignore the fact that Ė
MALE VOICE: [interposing] sure.
MALE VOICE: -they donít run all the time and it would triple the cost of electricity. So, youíre billion, Iíll add, Iíll see your billion and raise you three.
MR. STEVEN MALANGA: Okay, I understand all that but as someone who actually considers himself a journalist, I hesitate to ask the question then is that, why is then, when the Westchester County Executive proposes this, it is merely reported in the papers as if a plan thatís potentially feasible or an idea worth exploring. Because itís, you know, itís presented quite straight forward.
MR. JOHN DYSON: Well, itís presented that way because they donít understand anything about the physics or chemistry of nuclear plants or of any other plants. And ah, I mean, we did a calculation once at the Power Authority. People said, ďburn woodĒ, as a couple of people mentioned earlier. And we did a calculation, if you took every new piece of growth of the forest, of the entire state of New York and you could somehow harvest all the new growth and you burned it, it would come to five hundred and fifty megawatts. And that compared to you know, peak load of Con Ed of eleven thousand, say for example, is five percent not even of the peek load of Con Ed and would be less than that of the state of New York. Burning every stick, if you could somehow harvest it all, this is because Vermont built some thing from fifty megawatts and that became the answer. The answer at [unintelligible] was, ďOkay, weíre not going to have a nuclear plant, weíre going to burn natural gas and we can use all the generatorsĒ.
Well, the generators of a facility like this are a very small part of the total economics. And you have to build this whole fabulous facility probably for two billion dollars to generate the stem, but youíre not going to generate it at Indian Point with nuclear. You still got to generate the steam to go through the turban. And thatís going to require a really quite impressive investment and a major facility there. And then again, on top of that, well, you know, you got to spend fuel rod pool at both Indian Point 2 and for that matter, Indian Point 1. We always talk about 2 and 3, I got news for you, thereís 1 and that has spent fuel rods. And so, you know, youíve got all of this spent fuel there, what are you going to do with that, somebody has to pay to maintain that.
What I think is such a trouble here is that the journalist who cover this, with all due respect, ah, donít hold factious comments to a standard of realistic science, leave aside economics. And nobody says to the person, ďWell you know, thatís a seven or eight billion dollar investment youíre taking on, whoís going to pay for it? Youíre going to pay for this in Westchester or Rockland?Ē But we had all of that stuff in nineteen eighty-three where they didnít want to participate in the evacuation drills and all of this other stuff. And in the end, rationality has to occur and unfortunately, it has to occur above all else, in the Governorís office. Like the President, in the end, the Governor is responsible for stopping the truly foolish activities of the legislature.
MALE VOICE: While thereís talk of closing down Indian Point, Mr. Dysonís comment a moment ago about suggesting that eighty percent of production be within city limits. As we speak, thereís a public hearing on 34th Street on the closing of the Waterside Plant, which is barely a half-mile from here. I see that youíre familiar with situation, would you please opine on that and does it make any sense to close a um, a plant of that size, when re-siting new plants would be virtually impossible in the city or next to impossible in view of everything else that youíre saying? In other words, how can we fight this, or do you agree, this should be fought?
MR. JOHN DYSON: Well, there are two elements to that point, one is, generating steam and the other one is generating electricity. The electricity I think is not particularly efficient plan, to be honest; we would do well replacing it and itís not that big. However, in a world where nothing new can be built, it would probably make sense to say, the Mayor must be for something else, of equal or larger size. For example, the Power Authorityís idea of increasing the Poletti Plant or Keyspanís idea of increasing the size of their plants in Queens.
You know, they can be for those things, which would provide cleaner electricity at less cost and might reap the benefits of selling this very expensive piece of real estate. And Con Ed has also promised theyíll take care of the steam system and also invest in the stem system, which was in danger of being made an orphan. And there are many buildings in this city that rely on stem, both for air conditioning and heating. The air conditioning part is commonly forgotten, but the stem runs the big compressors also for the air conditioning. So, I think thatís not a bad bargain all taken together, but taking it down in absence of a city policy to support something somewhere else would probably be a mistake, just because you canít afford to give up anything in the city unless you have a replacement.
MR. STEVEN MALANGA: Yes.
MR. EUGENE HARPER: My name is, Gene Harper and this is a question for, John Dyson. You first indicated that we were likely to have to fall back on Apney [phonetic] or the partnership for political leadership in this realm, but then, finally pointed at the governor. Whatís likely to move the Governor in the right direction and whatís likely to present him in going in the right direction?
MR. JOHN DYSON: Whatís likely to move any man, I think in that position is, the sense of the responsibility to the future of the citizens of the state. That sounds very idealistic, but I think thatís the main thing, what happens to the economy, how do we provide for our children not being seen as the governor that dropped the ball and led to all of these blackouts. And I think there are a nest of issues [cough], excuse me, that he will think about.
MR. PETER HUBER: Certainly want to have a political [unintelligible] is not becoming the next Gray Davis. I mean, it is possible these things creep up on you, but they are very painful when they finally go on.
MR. MARK MILLS: Thereís a Ė
MALE VOICE: [interposing] yeah.
MR. MARK MILLS: -thereís a certain irony and John pointed out that this is an information-centric city. In a post 9/11 environment, one fact that all the groups that are studying, improved security, will tell you is that the way you improve power security is to have your power plants closer to your consumption point. So, building power plants, even if you were up state New York, simply increases the vulnerability to the city of New York from sabotage and attack, so reliability improves dramatically. One other point, itís a technological point, which is a real irony here. These debates are stuck in the thinking of twenty years ago, as John pointed out, he visited these things in ninety-eight, as I did and Peter did.
Technologies changed; thereís a certain irony here. One can actually build very clean burning power plants in the cities and close to urban areas now. Setting aside, a nuclear plant is clean by definition. Itís as if thereís no confidence in this studying advances in technology all across the board in terms of, monitoring efficiency and admissions. The improvements are orders of magnitude better.
MR. JOHN DYSON: I think in this sense, the technology improvements are every bit as good as what we see in for example, the smart bumps. This field has had a dramatic improvement in twenty years, including safety. The negative side of it are all the reasons Demagogy and bowing to the environmental movement and all that. You know, the environmental movement has always annoyed me, Iím an agriculture economist and I grew up on a farm in upstate New York and I think I know a little something about, I actually took more biology at Cornell and the Ag school. And all four of the environmental commissioners I worked with in the Kerry administration added together. And it always annoyed me that they come at this with so little understanding of biology.
However, when they think about these tradeoffs, they take the view that tradeoffs donít have to be made, you know, we can just turn off the toaster oven. And it just doesnít do it and the history as my two colleagues here have told you, is that none of these trends are going to turn around, none of the things that they have talked about work, they havenít got a single practical solution to anything along this line. The American public can say, ďWell, we ought to get rid of SUVís and have higher mileage carsĒ. It isnít going to happen, you know, these things just donít happen, they canít per sway the American public to do what they say. They can often, however, persuade the legislators to talk about these kinds of things.
And the reason I say it comes down to the governor, is not to pick on him or his predecessor or successor for that matter. But the American system focuses a lot of authority in the hands of the Executive for a reason, which is, that we really donít trust the decisions to be made for an entire state to be delegated to a particular city council or particular state legislator. We rely on the executive, whether it is the president or the governor or in this city, the mayor, to make these decisions and to do it for the best interest of the future.
Unless people in that position do that, it seems to me, we are going only in one direction, with Enron and everything else happening, itís going to be harder and harder to build plants. And we are not going to be able to keep up with the demand of our economy for more energy, unless the energy grows. If the energy doesnít grow, all this tells you is, that the economy cannot grow here, if the energy doesnít grow then the economy cannot grow here. Itíll grow somewhere else where they donít have as restrictive and as narrow minded and as backward looking set of politicians as we have, if they fail us. Hopefully, they wonít fail us.
MR. CHUCK BRUNIE: Chuck Brunie for Peter, in Bjorn Lombergís book as I recall, the Skeptical Environmentalist, he had two technological breakthroughs. One was the Athabasca tar sands, where the cost has come down by three quarters in a couple of decades. And if oil were forty dollars, you could supply all of the energy with North America for a century. And the second one was with fuel cells getting the transportation cost or distribution. If you could cover two point six percent of the Sahara Desert and that would supply all of the worldís energy needs for infinity. Would you comment on those?
MR. PETER HUBER: I think the Sahara Desert is solar cells, not fuel cells. And if you can get your electrons from the Sahara to here then that will be progress. This will take quite a while, I mean, tar sands as well, thereís an enormous amount of very thinly dispersed energy there. I do not for a second doubt that over time we will find ways to squeeze that energy out of the tar sands. You know, to keep the computers lit on Wall Street for the next five years is not going to be from Lake Athabasca up north.
MR. STEVEN MALANGA: Thank you very much; Iíd like to thank our presenters, John, Mark and Peter.