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Event Transcript
September 3, 2003


Energy Here and Now: New Yorkís Independent Future

[START TAPE 1 SIDE A]

MR. STEVEN MALANGA:  On August 14th, I was err, sitting in the reference room of the library on 5th Avenue when the lights went out.  I heard a librarian say very loudly into what I think was the phone, it seems weíve lost power up here.  A few minutes after that, a few maintenance men and a security guard showed up and I thought to myself, Iíll stick around, maybe theyíll have this figured out in a few minutes. Seven hours and forty-five minutes later I put the key in my front door having gone through a very difficult commute. And as many of you in the audience will know, I was actually one of the lucky ones, I didnít have to spend the err, the err night on the street in Manhattan as too many people did.

But during the course of those seven hours and forty-five minutes that it took me to finally get home, err, I discovered quite a number of interesting things that I hadnít thought about. Err, when I made my way back to our offices, I had to pretty much beg the err sup, the super of the building to let me in to get my jacket because I had my, my keys in my jacket. Err, they had shut down our building and tossed us all out on the street and in fact err, we were there milling around with thousands of other New York office workers who had similarly been tossed out of their buildings and err were now wandering around the streets of Manhattan figuring out what to do.

Err, among other things, I err made my way at one point down 8th Avenue and I came across the um Port Authority, and I saw thousands of people milling in the street in front of the Port Authority Building.  I later learned that err, the Port Authority Bus Terminal doesnít have emergency power and so as a result they shut down the building and kicked everybody out and therefore one of the err, few means of transportation not tied to the grid, those gas buses that were filled up, err were not available to thousands of people. 

There were lots of other things I discovered that day. Um, when the lights went down, I had err, about $5 in my pocket.  I had been meaning all day to go to an ATM. Suddenly, I realized when the vendors on the street were charging $7 for a bottle of water, and err, there wasnít an ATM in town working, that err, short of larceny, there was no way to get, to get money once the err, once the power goes down.

I'm sure many of you in this audience have um, had similar experiences which raised a lot of err, similar questions, and what weíre here to do today is talk about some of these issues.  To talk about what kinds of public policy decisions, what kinds of decisions in the private sector might ameliorate err, future situations like this and maybe even prevent them.  Where have weíve gone wrong if we have gone wrong, and what can we do better?  Weíve got a distinguished panel here to talk about err, these issues today. I'm going to introduce them to you all in a row right now and then weíll have them just get up and speak. I think you probably have their bio so Iíll just say a few words about each of them.

Weíre going to start with John Gilbert, whoís Chief Operating Officer of Rudin Management, one of the major landlords in the city um, and in particular John is also Chief Technology Officer of the, of the company which operates among other things, 55 Broad Street, better known as the New York err, Technology Center I think it is. One of the err, what was in the mid-90s one of the cutting edge technology buildings in the city, I assume itís still is.

Um, in Johnís previous life, he had what I consider one of the two or three toughest jobs in New York City, and thatís saying quite a bit, but John was previously the director of the Rent Stabilization Association which for those of you who donít know, is the landlord group dedicated to trying to reinject free enterprise into the housing market of New York City.  If that isnít a difficult job, I donít know what is.

Um, next we are going to hear from Peter Huber who is the Senior Fellow at the Manhattan Institute and also one of the founders of the Digital Power Group. Peter had written extensively on the intersection of science, technology and public policy and such books as the Galileoís Revenge, which is about junk science and the courts, and Hard Green, saving the environment from the environment, um, environmentalists.

Um, weíll also hear from Mark Mills who is also a cofounder of the Digital Power Group.  Mark has been an energy and technology consultant for many years and he served in a staff position on the Reagan White House consulting on energy matters. And finally weíll hear from Peter Gross who is the Chief Executive Officer of EYP Mission Critical Facilities.  These are the kinds of facilities that need to err, stay operating even during power failures, such as 911, call centers, Wall Street trading floors. Peterís company help design and operate those kinds of systems, the kinds of facilities that I think many of us wish we would have been in um, on, on the day of the blackout.

Weíre going to start with John.  Would you please welcome John Gilbert. [applause]

MR. JOHN GILBERT:  I'm going to stay right here if thatís okay with everyone.  Um, thanks, Steve, for the err, the kind introduction. Many of you will remember Tip OíNeal who the venerable speaker of the House of Representatives who coined the term that all politics is local. The theme of what I wanted to talk about briefly this morning is that I think that all energy and all electricity issues are local.  When we think about what happened on August 14th, as Steve described, God bless you, as Steve described his experience and Peter was on an island a hundred miles north of Toronto, um, I was sitting on the 33rd floor of 345 Park Avenue and just gotten off the subway, thank goodness, just gotten off is the thank goodness, and it was real clear to us that something very large had happened because as we could look out of our windows, err, it was clear that this was widespread situation.  Within ten minutes we knew that it was, was very widespread as we began making calls around the State and around the region.

Um, but at that point, I donít think if you were stuck in an elevator, stuck in a subway, in the library on 5th Avenue, it didnít matter where the source of that problem was.  What did matter is where were you, were you safe, where was your family, were they safe, and ultimately figuring out the steps that you were going to take to get yourself out of this situation.  And I think the local issue is very, very important because in my mind many of the, the, the steps that New York City should take are local steps. 

Now New York City doesnít control its own destiny from an energy standpoint, but it can create a planning platform that can identify sites and begin the process to push these sites to create new generating capacity and thatís what we need to do.

Now I'm going to get to that a little bit more later, but I did want to talk about one other observation that I thought was, was very interesting.  Weíre, weíre in this economy called the digital economy.  Well, when the juice went out, there ainít no digital economy. We were all scrambling for analog answers to digital products that we all own and operate. Transistor radios, key, batteries, key, princess phones, key, identifying copper analog lines that bypassed your PBX, key. Obviously, getting your genset started, keeping them going, identifying the issues in terms of the load, profiles that needed to be carried by those gensets were absolutely crucial.

But in my mind, it really came down to one issue in terms of how you individually or collectively dealt with this.  And from Rudin Management we own 40 buildings in Manhattan, we had a lot of people that were in elevators, we got them all out, we got everybody down.  The smartest thing that we had done in the prior year and it was not a planning for disaster, but was really an effort to decrease our energy and our load was to install battery operated motion sensors in our stairwells. They all went on, they all worked, everybody who was in a Rudin building walked down, in a commercial building, walked down in a lit stairwell.  This was very, very good news.

Um, so as we, as we look at this digital economy and we realize that we, that the, the redundancy that we need to build into are to back up that digital world in which we live really is an analog world, and we really have to go back to the tools that we used before this digital economy existed and make sure that weíve got those in our hip pocket. Jeff Levy was saying that he now, at home has a, an analog phone next to his, his digital phone so that if the power goes out, he can simply plug that in and bypass the phone system that he has at home.

I think itís also important to look at power priorities. In my own situation, I was in New York, my son was in Westchester, and my wife was in Saratoga.  Um, I donít know whether it was by chance or whether it was because the ponies were running in Saratoga, but she never lost power, and perhaps our, our priorities and I'm saying this certainly trying an attempt at humor, but I think when we look at those communities, Rockfield Center was another one.  Rockfield Center does not rely on any outside sources to create electricity. It stayed up. 

And I think that as a, as a model, my belief the answer is, and as co-chair of the, the Energy Committee and along with the Association for Better New York, the New York City Partnership, the Real Estate Board of New York, Building Trades, we had the unions involved and we also had the National Resource Defense Council all coming out in favor of a plan to build 3,000 megawatts of new generating capacity over the next five years in the City of New York.

And in my mind, that is the key piece because again it all comes back to all electricity, all energy issues are local. The closer you are to your generators, the better off youíre going to be. The more you have to rely on electricity and electrons being pushed over long distances, the more bad things can happen.  And I think we really need to focus on it and I know the real issue here is political will. What communities are going to get these, these power plants? Nobody wants them, but guess what, three things happen when you, if you can create these 3,000 megawatts.

The first thing that happens is you stabilize price, because you increase supply.  The second thing that happens is that you can begin the planning to decommission and retire a lot of these older power plants.  Err, and the third thing that happens is that you can meet expected demand so that the New York economy can grow.

These are three positive outcomes of ultimately a planning process that needs one ingredient and thatís political will.  As political world of the state, weíve got to go back and weíve got to repass Article 10.  Currently, New York does not have a law on the books that creates a process for citing a power plant, it all falls back to SECRE [phonetic], SECA requirements. This is not a good thing, this does not create stability, this does not create certainty within the market.  In terms of the financing of these plants, itís very, very difficult to finance these plants with uncertainty.

The second thing that has to happen and I think Con Ed is, is becoming willing to do this, is that you need to do long term commitments.  Itís no different than building an office building. I can finance an office building if Iíve got it at 100% leased in three seconds. Well, Con Ed and the other utilities have to be able to step up and agree to purchase long term commitments for electricity thatís being generated out of these new plants.

The one, the one thing about electricity is that no one really focuses on it.  Everybody takes it for granted until the lights go out.  Well, in the last week weíve had power outages obviously, in the last two weeks in New York, London and yesterday in Mexico.  Err, Peter Huber was in two out of three of those places, so there is some concern that part of the cause of these blackouts maybe the electric magnetic field being emitted by one Peter Huber, but I doubt that has much to do with it.

I think the other piece thatís really important as we begin to dissect what did happen on the 14th is that, was an enormous lack of communication. The fact that First Energyís grid, and it was almost like an aside in the article that the alarm, the alarm, not alarms.  The alarm, did, was not plugged in or was not operative to let anybody know that, and we now have a new term that we all have to understand, loop flow, that this surge of electrons were, were moving through and they didnít tell anybody.  How in 20 seconds can 62,000 megawatts of power feeding 50 million people suddenly be shut down err, with seemingly not a human being being involved. Thereís something seriously wrong with that.

And I think the level of communication and I hope weíre going to hear today about the need to embed intelligence within this grid. Is thereís people who are much smarter than I am on this issue that I think will, will be able to, to enlighten us. The reality of what we need to do, is we need to figure out how to use less electricity and we have to figure out how to make more of it. And weíve got to figure out how to, how to create this commodity more efficiently, more environmentally friendly and in a way that all of us can ultimately win. 

I would also urge each of you to read an article that was in yesterdayís New York Times. It discussed the work of a Dr. Richard Smalley, who was a Nobel Laureate.  Heís the guy who discovered carbon nanotubes, which are nano technology, very, very small err, nano sized err, particles that ultimately he hopes will allow electricity of the flow, to use to be used electricity within computers, ultimately to create transmission lines much, much lighter.  But within that article, Smalley talked about the need and I'm beginning, again itís the first time I read this, but heís calling for much like President Kennedy talked about the need for the entire country to rally around the space program.  That, that heís calling upon the President to rally around the issue of how are we going to power this country and the world over the next 50 years, because anywhere between the year 2020 and the year 2050, we will begin, we will hit the curve where our oil reserves will be, becoming, I mean theyíre already becoming depleted every day, but thatís the curve where we will begin to run out of oil. Itís not a lot of time.  And whether the fuel, the choice of, of the future fuel is hydrogen or some other source, we need to focus on that.

And as the father of a son of a hopefully a bioengineer, heís in his second year, I was also struck by the fact that Smalley identifies the fact that 90% of the engineers and physicists over the next five to ten years will not be American born.  They will come from other countries around the world, and although thereís some good in that, I think that, that we as Americans and we as fathers and mothers err, have to make sure that our children are understanding physics, are understanding mathematics, and hopefully we can convince them that this is a very worthy area, err to study, so that we certainly can get on with the issue of figuring out whatís going to replace oil and natural gas as our fuel of choice.  Thank you, Steven. [applause]

MR. PETER HUBER: Well, the grid is, the grid is err, 600, is this on? Yeah, it is on.  The grid is um, 680,000 miles of backbone of copper and aluminum and about 2.5 million miles of local distribution plant. Itís by far the largest engineering structure err, in the country and on the face of the planet. Um, and to understand the stresses on this err, structure, err you really have to look at all the stuff that isnít grid um, and err what is driving that end of things.

Um, the alarming, the most alarming thing about August 14th is it wasnít a particularly bad day for the grid.  I mean demand wasnít that high, most, very few of the wires were stressed at all. Um, I shudder to think what it would have, what it would have been like if it had been a bad day, if we really had had a um, heat wave um, moving through the northeast of the time or if conditions had been anything like they were in France and London.  Um, itís interesting to try and picture where it would have stopped.  It wouldnít have been stopped as quickly or have been solved as um, as fast as this one was.

Um, there are very powerful centrifugal forces that are driving, tending to drive, generating capacity away from end users, and one really has to focus on those and understand them because they are natural, they are embedded, they are growing stronger not weaker, and they are ultimately what our stressing the grid which, which connects generators, um, which produce the electricity to loads where itís consumed.

The average distance between your light bulb and your refrigerator and the fuel that is keeping from your light bulb lit is growing year by year.  It has been, essentially since the dawn of the electric age, but in the last decade or two, um, the pressures have, have been growing stronger. And Iíd like to quickly sort of recapitulate those for you because they are so easy to forget.  The first is there are very natural economic imperatives to build very large power plants, and very large necessarily means far away.  You canít physically locate them in Manhattan and if theyíre that big, theyíve got to serve a whole lot of people, which means you need a lot of grid.

Um, the economics imperatives are, are not to be dismissed out of hand.  I mean they, they are, they are very profound economies in building big power plants. Power plant are thermal engines, theyíre James Watt 200 years later and thermal engines, whatever anybody else may try and tell you, and people will try and tell you everything else under the sun, but thermal engines, the bigger they are, the more efficient they get.  You get stupendous by engineering standards, stupendous efficiencies out of, one of these huge coal or nuclear power plant. Youíre pushing 45%, 50% thermal efficiency.  Your car engine canít begin to do that on its best day. I mean um, you know, unless you, youíve bought something very exotic and weird.  Typical small engines are youíre lucky if youíre getting 20% or 25% thermal efficiency.

Big systems burn fuel very, very efficiently.  The only things that can match them really now in the, relatively small systems, and these are the kinds of err, systems that being debated for local citing in New York are, are um, are still relatively large gas, err gas, gas fired turbines, and those are now very efficient as well.  They also use a very expensive and um, um, sometimes difficult to obtain fuel. 

Um, so you, youíll have the, just natural economies that have pushed people to building bigger and bigger plants, and these big plants generate extremely cheap electrons. They also allow time shifting. I mean if you put these plants 300 miles from err, where powerís being consumed in two directions, so they have a 600 mile footprint, you can, you can accommodate a peak in New York and then a peak in Detroit and then a peak in Chicago and theyíre at different times of day, and so you can, you get very efficient usage out of this plant. But all of this of course pushes you to, err, to, to a very high dependence on this grid.

Um, secondly, there have been a series of economic err, regulatory or deregulatory factors that have once again, and are in place today.  I mean they are probably the dominant sort of animating force in the, in the configuration and reconfiguration of our, of our, of our network, of our power grid over time.  These regulatory changes have essentially made it very much more economically attractive if you can, to ship your electrons across state lines.  Basically, the Feds have been out ahead of most of the states in this regard, err, weíre out ahead, I donít, I'm not being judgmental here. Itís not necessarily a good thing, but basically federal policies has been to deregulate interstate electrons to let, to let the market set prices, and of course if you have any residuum on state regulation on prices still in place, then there is a very strong incentive to, to hand your electrons off across state lines to escape regulation.

So, so particularly when, I mean if, if you had deregulation across the board that incentive would disappear. But when thereís any imbalance between federal and state regulation, and I emphasis I would not at this point, itís too complicated to say the Feds are right or the states are right. Itís a very delicate question because if thereís any imbalance in that regulatory structure, you create a strong incentive to, to buy your, to sell your electrons at a distance and then and thus once again increase dependence on the grid. 

And then finally, there are the very powerful and often despositive environment regulatory pressures ranging from the often farfetched and absurd evacuation plans for nuclear power plants.  The, the air quality regulations for coal plants and of course the, the citing, zoning, not in my backyard regulations for all plants, right down to the very cleanest gas fire plants that, that basically encourage again the same natural tendency to relocate plants far away, so first of all there are fewer to complain when theyíre far away and secondly, sooner or later youíll find somebody like Quebec say, that is perfectly happy to flood a, you know, 10,000 square miles or whatever it maybe and good for them. I mean they generate a lot of power and they, they sell it, or in any event, that is the, again part of the dynamic that raises our dependence on this grid.

Um, all of these factors, notice are affecting where the power plants, the generators get located, um, and all of them therefore increase demand on what transports the electrons. There are no parallel incentives, I mean zero. In fact, all of the incentives when it comes to constructing grid, these 600, weíre upgrading these 680,000 miles of long haul transmission plant and the 2.5 million miles of local distribution plant, all of the incentives are toward doing less at present.

And therefore, one can say with high confidence that, I mean if the status quo, if the regulatory status quo is maintained, August 14th will, will happen again.  It will be worse next time. I mean I canít give you the exact date, but it, itís basically a, a certainty on the current trajectory of things. 

What are the economic incentives on grid?  You know, like it or not, and Iíve hardly ever met a regulation I liked, but the grid itself, and I donít like these regulations either, but the grid itself is about as close to an [unintelligible] monopoly as youíre ever going to find.  It is, you are not going to build two long haul transmission systems, it just, reality has to set in sometimes even at the Manhattan Institute. These things will, will not be replicated in toto, so thereís going to be one, so there will be a regulatory system and exactly the same is true of the, the local distribution plant under the street of New York or in the overhead wires out, out in the suburbs. 

These, this system remains under cost plus regulation which is basically you got to justify year by year your investments to regulators. Regulators tend to be very slow in deciding whether to approve err, price, price increases or um, connected to new investment and transmission grid.  But if you are foolish enough to, to, to build an inter tie or to build a line that is badly underused, you are guaranteed by regulatory history to have people all over you saying this was an unwise investment, weíre not going to let you get your money back. So you have, and you have at the same time um, forced interconnection at all ends, to consumers at one end, you have to extend wires to, to, to serve them and to generators at the other.

This is not a stable situation that, that private capital will migrate to and in fact over, and many of these forces have, have crystallized in the last decade or so and during that period spending on the grid has dropped what 50% or so from five billion a year, thereabouts, I'm speaking from memory to around two billion a year in current dollars.

So, so this is a, this is a very unstable dynamic. Why, why hasnít it all collapsed already? Because itís a huge system, I mean itís a gigantic.  Thereís enormous investment, which means it takes significant amounts of time to destroy it.  I mean no matter how, you know, how systematically you, you set out to do so through, through unbalanced regulation, these things decay with time and, and um, thatís what weíre now witnessing.

What are the solutions?  One solution is the no grid solution and um, it is a serious solution.  I mean about 10% of our public generating capacity is now mirrored by private generators, not running full time but actual generating capacity.  Thatís a huge amount of private generating capacity and itís in place.  I simplify it, but roughly speaking because, because people fully recognize correctly that they cannot trust the stock exchange or the critical nodes, and there are many of them to, to, this grid.

Three to 5%, which is still a huge number, a huge percentage of the, of the grid is now replicated in a sense by uninterruptible power supplies. I mean for many people these are just the small units you put beside a personal computer, but for many buildings and factories and data centers, these are very large sort of silicon power plants with banks of batteries, um, um phone companies and others have these in place to keep things lit at least in the interim, um, while, um, while the grid is down.

Um, there are, it is even difficult to prescribe um, where we should encourage spending if we, on the grid, new spending on the grid, um, if, if we, weíre resolved and had the political will which may now crystallize in the next few months um, to direct that spending.  I think almost without doubt, the, the single top priority and there are relatively easy policies to put in place on this.  I mean rather a simple one for example would be to allow grid owners to expense these items, to actually put them directly in their, in their transmission and distribution rate base sort of today and, and write them off, pay them off within, within 12 months at rate payersí expense.  Yes, your electricity bill would pay for them.

But, to put, to have very fast expense and write off of new investment and SCADA networks and switches. I will not give you a long lecture on SCADA networks, but they are the bits that control the power. They are actually data networks overlaid on top of all of the grids.  There are sensors embedded in all of the grids. Mark and I have actually written an article on this recently. It was in Forbes last week, um and these are the control systems. They canít be controlled by and large by human operators looking at screens, but you layer software on top of these and a properly data network grid would have, would have, would have save us on August 14th. Not a single change in physical plant, no additional generating capacity.  Simple, simply a more intelligent grid with more sensors and a better data network and better software running it would have done that.

The next step is clearly more, more nodal switches, our others have written about these and we can perhaps get, get I to them, in, in, in, in the, in our discussion period in the moment.  But finally, we can get back to where, where we began.  This very strong tendency to move the power plant away from the load is, is the root cause of the problem. And if you want to just think fundamental systemically, you know, what are the here and now things that can be done.  Itís to move the power closer to house. For the most critical users, it means moving it right onto the premises, and for a serious city which New York still definitely is, it means generating as much of your power as you plausible you can, closer to home than Akron, Ohio.  Thank you. 

MR. MARK MILLS:  I'm going to link the two universes that Peter and John have described, particularly as youíll see in the minute the context of this paper that Peter and I have authored, which you have on the table at that back called Critical Power, which I, I should point out just for the record, we didnít write those 35,000 words three days after 8/14, but actually had started the project quite a few months earlier, basically on the premise that something like 8/14 would happen and, and indeed things like 8/14 linked to 9/11 kind of concerns make it much more, much more important, much more critical to think about power.

Peter talked about centripetal forces that are driving generation further away from demand, and to pick up on Johnís observation that he wants everyone to be better in physics and I like to hear that because I are one. Physics is my, my discipline.  I'm going to talk about the centripetal forces that are driving demand side. That is the increase in importance for power from the local level. Peterís outlined the centripetal forces driving generation away increasing the use of the grid, the demand for the grid, and theyíre, theyíre very, very powerful forces. And incidentally, as Peter noted, they are not forces that will be easily changed.  This is an enormous of political and physical institutional inertia behind the forces that are pushing greater over alliance on the grid itself. 

But in the same time, what, what everyone knows and John pointed it out and Steve introduced this err, panel with the observations about how local power is. Err, everyone has figured this out, I mean this outage and whether you were in it or close to it, and you had friends in it, everyone figured out that itís local, and itís more important now.  But let me, let me hang some numbers on that.  For just a very broad perspective on how much more critical power is.

The last great outage, great in magnitude was in 1965. Everyone knows this, it was in every, every single news story referred to the 1965 blackout.  Um, itís true that we use more electricity now than compared to 1965, so if the whole challenge was simply that we use more electricity, because the economy is bigger, because there are more people, then really it hasnít changed the character of the problem.  I mean the real important question from a policy perspective is whether the problem is more serious, in other words, is power more critical, not just bigger.  Sure, more people use more power. Is it more critical?

Well, thereís one way to measure this, at the macro economic level, in 1965, roughly a third of the economy used electricity as, as its primary fuel. The rest of the economy was dependent on pump combustion fuels, you know, engine turbines at the point of use, boilers.  Today, two thirds of the US economy depends on electricity as its primary fuel.  This is significant.  Most of this change by the way, occurred in the last 20 years, a lot of them in the last decade.  In other words, the electrification and the, the penetration of digital technology is broadly speaking into our economy has not just increased the absolute consumption of electricity. Thatís, thatís a problem by itself, which means more people are affected.  It has in absolute terms increased the importance of electricity.

And itís that single fact that has dramatically changed how important it is to do something different about our electric system, and of course it is a singular fact that we have, we donít operate either the grid itself, power distribution or legislation and regulations surrounding power any differently in any fundamental way than we did in 1965, in any fundamental way.  Itís treated essentially the same way.  Power is now more critical, we do not have in place any regulations, any policy, any legislation that is oriented towards dealing with increased criticality of power to end users.

This, you know, the last two decades are more than Iíve been involved in electric technology issues, Iíve been to dare I say hundreds of hearings, Iíve testified at dozens and dozens.  And the issue thatís almost always on the table and all of you know this and know why is primarily the cost of energy, the cost of electricity, not its reliability.  Reliability has taken a, a deep background seat. Organizations that are charged with this problem of having a reliable electric supply, the North American Electric Reliability Council, NERC. For those of you that have never heard the acronym, if you read, if youíve been reading the news since 8/14, youíve all seen quotes from Mike Gent who is the President of NERC, who Iíve known for 20 years.  Heís a terrific guy, great organization, and theyíve made a lot of progress, but their progress has been challenged just to keep up with the magnitude of increased demand, not the increase criticality of the demand at the local level.

What we did in our, in our um, paper is sought to answer essentially from Johnís perspective, from the local level, from all, all politics or local as heís, say no to OíNeal, energyís level from the, sort of the transformation of Tip OíNealís great statement, we looked at critical nodes from the local perspectives.  That is what we wanted to do is figure out not just what was critical, but how much of all that stuff out, is, out there is critical.  Begin in a sense an assessment from the national perspective. Clearly, all assessments have to ultimately be done at the local level, the city level or the region, but you could begin to get a picture by, by aggregating up all the total number of critical nodes, the critical loads from the bottom up instead of from the top down. Itís easy to stipulate we want to keep the grid lit, but you can also stipulate as Peter noted, it will happen again.  The grid will go down, itís a necessary consequence of a long wired system, it will fail again.  Our goal is to make it fail less frequently, but even if it fails less frequently, the increased criticality of power means that the frequency is always there, itís a fixed number, it will fail.

So what we, to tote up what was critical, rather than take it from again the governmentís perspective of you know, that obviously electric system is critical, you know the initiatives that have come out of the federal government to look at the critical infrastructure.  We did it a little bit differently. We, we passed the country into basically three networks.  Fundamentally, the country public service and err, important services fall into three broad networks.  The first is our communications networks of all kinds.  The second are the public service and emergency networks of all kinds and the third, all our physical networks. Communication networks you understand what those are, everything from telephones and broadcast, and, and TV of course, and Internet.

The public service networks are things like the police, fire, you know, emergency 911 calls, hospitals.  Those are all the critical services, network and services we need all the time and particularly in emergencies.  And the physical networks of course comprise the movement of all the physical things we need in our economy, gas, oil, vehicles and people in them are objects in them, and electricity itself treated as broadly part of the movement of the physical, the electrons in this case.

And then in each of those broad networks when you went looking at all the critical nodes, whatís critical to each, each of those networks from an electric perspective. What has to keep powered?  Err, and we count the nodes up. On the telecommunications side, we estimate based on the best data thatís available and weíre pretty confident weíre right within a reasonable order.  Thereís about 250,000 critical nodes. These range from roughly 20,000 central offices which to Steveís point he was noting that people for old analog lines to talk to on your princess phone when the power goes down because your digital PBX isnít powered.  It didnít have a backup, which it could have by the way.

Well, the reason that the phone, the princess phone still works is because the phone company figured out nearly a century ago that you have to back up the phone line itself at the central office and power the phone line.  In the case of the analog phone line, itís self-powered.  Itís self-powered from the head end, and it will stay self-powered as long as the power at the central office is not off longer than, either the batteries run there or the generator set there has enough fuel.

In a number of cases, when thereís been extended outages, the central offices goes dark too, because the batteries run hours, the gensets if they are on oil have to have enough fuel for if the outage is extended for days.  If itís natural gas fired generators, you are, one has to assume that the gas pipeline is intact, which constitutes another set of critical nodes Iíll talk about in a second.

The telecommunication systems include the cellular communications networks that weíve become so dependent on.  All of you I'm sure read that a lot of the cell towers went down all over the great swath of, of err, the country in the northeast that lost power. The cell tower operators arenít stupid, they do have batteries at these, at the cell towers, but the batteries are typically designed to run a couple of hours. Now thereís a piece of physics in here. It cost energy to bits around so when thereís an outage, everybody puts on their cell phones, so the cell tower usage rate soars and surprise, all those electrons being converted to photons, RF photons, such the batteries down in about an hour or 20 minutes or sometimes even faster, and the cell system goes dark. 

The broadcast towers go dark.  They did in the northeast in the ice storm of 1999. FEMA pointed out that weíre unable to give people warnings about what they should do or shouldnít do on their battery powered transistor radios because the broadcast towers went dark, because the backup generators either didnít exist or didnít have enough fuel if they did exist.

On the err, public networks, the err, we have to make those roughly 100,000 facilities or buildings that constitute fire stations, police stations, hospitals, emergency clinics and so on. The vast majority of those are not set up to operate for any extended period of time when the power is out.  Even err, 911 centers, itís interesting, the national association that operates the 7,000 911 emergency call centers does have a standard. The standard is that when the power goes down, their standard is to have enough backup power is a minimum for 15 minutes.  The recommendation is to have on site generators sufficient for an hour nationally, and then beyond that the advice in the enabling document is to consult with the local utility.  Punting to the utility when thereís, the gridís black for 80 million people of course is not a big help.

The physical network side, the number of critical nodes is even larger as you might imagine. That is counting all the, not just communications towers for FAA, but all of the control systems for the pipelines, for electric grid itself, for oil distribution, for gasoline pumps as you saw in a lot of areas, the gasoline pumps to pump, to fill up your car that doesnít depend on the grid actually does depend on the grid because the pumps, for the gas stations themselves are electrically powered. 

As are the control systems for the many of the pipelines systems and distribution systems are digitally enabled, many of the critical valves are digitally controlled, digitally enabled and are controlled by communication systems that require backup themselves so that you know whatís happening out there. And if the backup communication systemís on top of the network that Peter described actually have only a couple of hours or six hours of battery time, when the outage last for a day, even those core communication systems go black.

Thereís about 400,000 critical nodes in the physical networks, so thereís a lot of them, ranging from rather small to, to rather large in absolute power terms. Then I'm not counting the roughly 20,000 banks and financial institutions that are critical in, in this modern economy and at least that many other commercial buildings which contain data centers and communications hubs on the private side that are often critical to the continued operation of an economy. Not a huge deal to send people home for an hour or a day, but outages lasting days and possibly, itís not inconceivable for outages to last weeks, then the issue becomes very serious. 

The weekís number, incidentally I take from a National Academy of Sciences study, published last year, called the Safer Nation, Making the Nation Safer, by the National Research Council, in which they posited rather alarmingly that concerted tax on the vulnerable grid and this was, 8/14 of course wasnít an attack of malevolence, it may have been an attack of stupidity, but it wasnít an attack of malevolence.  The common mode attack on our grid could very realistically see large swaths of country and cities out of power for weeks, in certain regions out for months.

Itís a very serious issue now because as everyone knows and, and as some of these data make clear, power is much more critical.  And New York City is of course a terrific example, and the data centers and the communications hub of the financial anchor of the world are to restate, I mean to say theyíre critical to electricity agree to say understates it.  That the electrons and photons, the bits are all the same, they require source of energy and they require enormous quantities of energy quite frankly. And even to keep the critical sub pieces of it running for extended periods of time is an enormous engineering challenge.

Now a lot of organizations have, have thought about this.  Well, weíre the first ones in writing our paper to figure out that power is critical.  But whatís interesting at looking at all these, these studies and reports that have been undertaken over the last, well in some cases 30 years ago, there were some very good report out from the Depart, the Army, from the Department of Defense on keeping their critical nodes lit.  Their communications facilities, their water pumps, their air filters. You can understand why they figured it out. Err, for them it is pretty critical. But our whole economy has become as critical as that.  Itís very, very few of dozens of analyses and reports that we looked at carefully on critical infrastructure actually acknowledge the importance and the need for policy and action to increase the supply of onsite backup power. 

[END TAPE 1 SIDE A]

[START TAPE 2 SIDE A]

MR. MARK MILLS:  [cont.] In the most cases, the punt the issue, they punt it to the utility. They want to be first in line for restoration is typically their response. Even the telecommunications industry recognizing this, this challenge and theyíve been one of the best in their electric service priority restoration program essentially say, err, we want to be first when the grid gets relit.  You got to light us first, hospitals, us, I mean thereís a, thereís a triage of priorities. If thereís nothing to light, being first is irrelevant quite obviously. The GAO, the Securities Exchange Commission and the Fed have all looked at the financial network and issued some extremely um, stringent standards about local backup to keep the financial networks operating.

GAO looked at the status of implementation of critical backup in the financial networks of the country just this past June, and reached the conclusion that vastly less has been done and they hope to recommend that they be done to keep the financial networks lit when, if power goes down.

Others have looked at this, I mean FEMA has done it. The FAA had its own study looking at its critical power needs. One of the um, err, participants in our critical power study, the CEO was sitting in La Guardiaís runway at 8/16 and I got a voice mail from him um, on 8, sorry 8/14.  At 8:50 I got a voice mail from him saying, I, I was on La Guardia, err, I, I was sitting on the runway at 8:16 if that means anything to you, and he just hung up.  He, he got, he got to leave because it was still light out. It turns out FAA does a very job of backing up the towers.  But La Guardia I didnít realize doesnít backup the lights on the runway so when it went dark, they stopped flying. 

But long before that happened, thereís no backup for all the security scanning equipment, so when that power went out, all the, security had to go back to manual, and you are all travelers like us, you know what that means. There was nobody flying. If you went on a plane, you just didnít leave.  And it had nothing to do with the towers being lit, it was this, this, this dense interconnected weave of what critical means in every part of our economy.

There are, I should conclude, I mean Iíve outlined numbers that total by the way 750,000 significant critical nodes in the three major networks of our economy, that ought to be backed up in some way or the other.  It sounds like an overwhelming number.  I should point out that none of the engineering or the physics or the, the basic mechanics in electrical engineering make any of this impossible to do, itís all doable. The impediments of doing it have to do with the ability to engineer it properly and have the legislative and the regulatory systems in place to create incentives and the framework for, in which businesses, primary businesses by the way, 90% of the critical nodes are in private sector. Incentives to encourage an installation, first an assessment of what is critical and then remediation and mitigation efforts simply wonít happen without the right framework, the right legislative policy frameworks.  Which Iíll leave then really that whatís possible to my colleague here, Peter Gross.

MR. PETER GROSS: Let me stop by you, by trying to validate what Mark just said here that Mission Critical Facilities do have indeed the ability to provide long term err, power regardless of the condition of the grid.

What are Mission Critical Facilities?  This term is becoming more and more popular and its definition grows broader as the importance of the, of the digital economy growth every day. Mission Critical Facilities are buildings, sites, which have a large technical content, that thereís electronic equipment, computers, telecommunication equipment, medical equipment. You name it, and at the same time, more importantly what reliability and availability is a critical factor.

The examples are very numerous and the um, the first to come to mind are computer centers, large computer centers, Internet centers, telecommunication facilities, err, FAA err, controlled towers, even hospitals and err, command centers, the 911 call centers. Itís, itís a long list and as the digital economy grows, err, the list of critical sites grows tremendously.

Um, how, how these, these facilities, these so called Mission Critical Facilities have the capability to survive this type of incidence.  Um, theyíre designed to sustain and to survive major external as well as internal events, not only power grid failures, but err, earthquakes and loss of utility water maybe err, electromagnetic blast.  In the same time, they are able to err, to survive internal failures, which are all numerous. 

The typical design err, involves four layers of components and I'm not going to try to get very technical here, but, but the basic element, the basic first layer is the, the so called electrical distribution which includes more conventional elements like transformers and wire ways cables and bus dots [phonetic], switchboards, fuses and circuit breakers.  The second one, the so-called conditioning layer includes more sophisticated elements interrupt, uninterrupted power supplies, surge depression devices which err, which err, clean up various transients coming up from, from the grid or you know, internally generated, err, or solid state the transfer devices which have the ability to transfer between various sources.

Err, itís important to understand that err, the typical electronic component to whether itís a computer or a maybe a medical device has the ability to survive and err, and continue to operate undisturbed if the power interruption doesnít exceed someone, something like 100 of, 100th of a second, something in the vicinity of a 100 millisecond. Thatís part of, I'm sorry, 10 milliseconds, thatís fairly fast.

The third layer is the so-called bridging, bridging layer of systems and that provides the, the transient short term power which will provide, provide um, electricity to the critical equipment from the time the [unintelligible] grid has been lost until the, the ultimate source of power is available or the utility grid returns.  Err, and these are err, obviously conventional batteries, chemical batteries, but more err, err, but also err, flywill [phonetic] devices or mechanical batteries and device like ultracapacitors or supercapacitors, very interesting devices available in the market today.

Finally, the, the fourth layer and probably the most important when it comes to these kind of long term power interruptions are the err, ultimate source of power and that includes standby generators, err, diesel generators, err, natural gas driven turbines and err, maybe fuel cells or other devices.  These Mission Critical Facilities have evolved tremendously in the past few years and now they have the capability to provide availabilities ranging from five lines to maybe six lines, at least the terms nines or sigma is a fairly commonly used term cell. What it means is, that essentially a facility like this, will not have a longer power interruption during that typically longer than five minutes. By comparison to utilities itís probably a couple of order of magnitude less reliable, a three nine, maybe two-and a half nine is a err, common number for utility. Err, that means that utility is going to be down for a couple of hours a year on the average versus five minutes for a typical Mission Critical Facility.

Now there are significant, there are progress significant new technologies available in this, in these field, new designs and new [unintelligible] or at least, reliability is, is trying to approach the six nine with six sigma.

Of all these elements comprising the, the critical infrastructure probably when it comes to long-term interruptions, the most important element is the standby generating plant.  Um, and as you probably, some of you might know, the generators, these kind of diesel generators installed in these various buildings, err, serve a dual, a dual function. One is to provide what is called life safety. Um, these generators is, especially in high rise, in high rises are required by law to provide power during the, the, the absence of utility power, to um, to supply um, err, the elevators and the um, emergency lighting and um, the fire protection and detections, the fire pumps and so on.

The, the other element which err, these generators need to satisfy is the err, to provide power to, to the um, the business mission of that tech facility whether itís an office space, a business part, a processing plant or maybe a fab or err, or a hospital. Um. the reliability of these generators is, is the most important factor when you analyze the behavior of these buildings, and a recent study performed by the Idaho National Engineering Labs err, which survey, survey the large number of generators err, installed in nuclear plant show that interestingly that only 1% of generators failed to start when called upon to during power interruptions. Two percent failed to operate beyond half an hour and 5% failed to, to perform properly beyond eight hours. And almost 15% of these generators failed to provide continuous power for 24 hours.

Err, note that this, these generators are better quality and better maintained than conventional generators in your, your typical office buildings, which are probably these numbers are, need to be reviewed by a factor of 10, from one order of magnitude. So how do Mission Critical Facilities react to these kinds of situations? The answer is, redundancy, fairly high level of redundancy which means that if, if a building needs maybe three generators to operate, maybe four, five, even six generators are installed to provide the, the, the right level of redundancy to, to achieve the redundancy level expected.

Err, as Peter mentioned before, the ultimate response to um, to any kind of utility grid is what is called onsite generation or distributed generation.  This very frequently used term today encompass a lot of things, but ultimately, what it means is that large users, whether itís a fabrication plant or a processing plant, maybe a business err, err part, will provide its own generating plant, which consists typically, typically of large err, national gas driven turbines and essentially they operate like a conventional power plant. 

Um, this kind of onsite generating plant have existed and have been operating for a number of years and theyíre installed for economic reasons.  A lot of hospitals, and schools, colleges other institutions have installed them. less for reliability reasons, but as I said for, for economic reasons. During the Internet boom, the large, the large web site and telecom hotels were planning to install fairly large onsite generating plants like, like these.  Err, the size varies between 20 megawatts to about 50, 50 megawatts, fairly large.

In order to make sense from err, from an economic standpoint in addition to the reliability things, there are two elements, which need to be satisfied here. Number one, these plants have to operate in parallel with the utility. They cannot operate as an island because economics just doesnít work err, so that err, they can sell all excess capacity, they generate back to utility so they can operate at full err, full load, therefore maximizing, maximizing their efficiency.

Secondly, it is very important that these, that they, they can find [unintelligible] of the heat generating in the process of generating power, whether for domestic hot water or maybe to, to um, chill the plant by using absorption chillers or other use like this.  The distributed generation, all these devices you use um, for, for creating additional source of power have other roles.  [unintelligible] is the first one to come to mind, but also low leveling and involving stabilization.  All kind of err, err, all kind of roles like this, but itís important to understand that there are risks err, when, with the proliferation of distributed generation, that the grid is becoming even more complex, there are difficult issues to resolve having to do with the gridís stability, its err, its err, its protection and selectivity. 

But to conclude, um, with proper planning and careful design and lots of money, there are ways to um, to survive these kinds of events like the August 14.

MR. STEVEN MALANGA:  Thank you.  Weíre going to have a question and answer period and Paul Howard is somewhere back there with microphones. Err, heíll err, heíll bring the microphone to you. I'm going to start with a few questions myself, and then weíll turn it err, to the audience. 

John, you, you said that since the blackout quite a number of err, different organizations, some of which arenít always on the same page have all err, decided that we need at least a certain amount of new generating capacity in the city, and we have to pursue this aggressively.  Err, how much more beyond that do they agree on, for instance, do they, do they agree on what kind of generating capacity. Err, I know weíre not even close to agreeing on where it will be, where it will be built, but what, what do we have beyond just this vague agreement that we need more power in the city that would, might give us some hope that something will actually get done?

MR. JOHN GILBERT:  Well, much like the article that, which is a terrific article and I, I urge everyone here to read it that um Mark and Peter wrote.  The report that I was talking about was actually released over a year ago and was actually the second of, of two reports. Err, the first was released during the err, the California blackouts.

To your question Steve, what do, what do, what does everybody agree upon?  Everybody pretty much agrees that we need 3,000 megawatts of generating capacity within the city limits.  Err, everybody agrees that, that these plants um, and I say unfortunately to Peterís point because I think heís absolutely correct that we, we do need to, to decentralize the generating capacity and I think thatís what, what Peter was talking about.

But these plants would generally be large plants, they would be in the range of, of 350 to 500 megawatts each.  Err, they need water, they need to be close to gas lines and they need to be close to the err, electrical grid.  And that these plants as I mentioned would do three things, stabilize price, err, plan for the future, err, in addition to price it would increase reliability because the plants would be closer to us, and, and I think as importantly are those two, two first items, is that it would also allow us to, to shut down a lot of the big polluting err, plants that now burn oil, that, that could be shut down over time once we replace the capacity that err, that we would need to do.

MR. STEVEN MALANGA:  So youíre saying we need ten of them then?

MR. JOHN GILBERT:  Yeah, thereís, there, you can, well the Trans Gas plant on the East River was an 1,100 megawatt plant.  Now the major, the Mayor put a cobash on that, there is still debate upon finding a new site, but that one plant would need about a third of that, that demand all by itself.

MR. STEVEN MALANGA:  Peter and Mark, when, when you talk about making the grid more intelligent, given that we have, it is this natural monopoly, given that it is regulated state by state, where, where does the incentive come to, and who takes charge of making the grid more intelligent.  Is there a, you know, where, whatís the unseen hand thatís going to do this?

MR. PETER HUBER: Um, Iíll answer that, but first Iíd like to follow up on whatís just said.  I, the city clearly needs to move forward aggressively with the relatively distributed closer to home power that is under debate. I mean thereís, thereís no question about that.  With that said, the city, we should also be aware um, what a couple of decades of poor policy have given us here. 

Stabilizing price, I, I wish it does partly as anyone here, but these are gas fired plants, okay.  The price of a gas-fired plant is dictated entirely by the price of gas and the outlook is not at all favorable. This is going, these are going to be expensive electrons for New York.  Now however expensive believe me, they are way cheaper than no electrons. Thatís very expensive for the city, but this is, this is a very, this is the most expensive possible option, okay. More intelligent planning earlier would have, would have given us a bigger base of, of err, of cheaper electrons. 

And in the midst of all this, I mean weíre talking about 3 kg watts of generating capacity, itís a good amount.  New York needs that power.  Thereís relatively serious talk and still in some circles apparently of shutting down a kg at Indian point, which is now that itís built, way, way cheaper at the margin, very cheap power, uranium is not an expensive fuel to burn.  One, one should keep some perspective on this. 

The, New York, it will take, it is now, youíre not going to fix anything in terms of price or stability over the next week or the next month.  Over the next two or three years by adding these gas fired units, you will stabilize your supply, although not your price. Iím think youíre mistaken on that John, weíll see, I hope youíre right, but it will depend entirely on whatís happening in Texas and elsewhere in the gas, drilling states and we just ought to be realistic about that. And the important decisions weíre making now are, and this is probably why they donít get made, are, are to stabilize things over the five and ten year horizons. But, the greatest city in the world ought to be able to plan on those kinds of horizons. Emergency deployment is what weíre effectively talking about, now gas fired units is not, is not, itís necessary, itís essential we should be backing that, but itís, itís not the long term planning thatís needed.

How do we, now how do we, well, you go ahead Mark, you take it, how do we, no, Iíll talk, [laughter].  No, itís all right, itís all yours.

MR. MARK MILLS:  No, do it, do it, go ahead.

MR. PETER HUBER: The incent, Iíll talk the incentives.  Mark, Mark and Peter Gross know the technology um, better than anyone, but there is a terrible problem in putting economic incentives in place to, for new investment in the grid because we have divided authority between federal and state regulators, all right, and you need, they have to be on the same page otherwise things donít go, and you have many mandates on interconnection. The, the, the only thing thatís easy is, is, is jumping to the bottom line.  If you give people fast payoffs, okay, fast guaranteed payoffs, and they have to be fast otherwise theyíre not guaranteed, on new investment, the investment will get made.

The only way to get that fast payoff is to directly connect the new investment in the grid itself, which maybe 300 miles from your home to your electricity bill, your personal electricity bill, and getting that connection is very difficult at the moment. It has to go through for, and state regulators, and it is a tangled mess. The currently, the incentives, if you have good money I would advise you all, do not put it in grid at the moment because certainly I, and nobody else can guarantee you a return on that money.

MR. MARK MILLS:  Just to amplify it, that one err, point where it goes and the hidden hand.  The Federal Government has a significant role, but as we know in the electric issue of, any kind of the Federal Government try to implement policy changes, it does hit both [unintelligible] or locals, especially when it comes to power plants and power lines.

But there is one encouraging note I would add because itís all, itís actually a fairly discouraging picture frankly, so one, one can become err, rather err, I suppose depressed at the prospect for any improvement in the reliability of electric supply. But there is one encouraging note that might help, I mean aside from maybe 8/14 plus 9/11 and so on as a wake up call, and maybe, maybe, legislators and regulators, particularly legislators will pay attention now.  And I, I think itís possible, I'm a better optimist so I think maybe, maybe that will happen.

But there is one, one important change.  The technology is different.  Just as our demand is different now than í65 and í75 and í85, the demand for critical power is different. Itís not much more, itís more intense, itís a larger show. The technologies that make possible improving the grid and improving backup power are profoundly different than they were 20 years ago, and even 10 years ago.  But, but Peter and I have written about electric for years now and itís part of what our piece informs us about. There was actually a [unintelligible] on confluence. It used to me, if I want a better grid, I have to build more wires and more quarters, and that, that, that is almost impossible frankly. If you talk to guys that build them, utilities and owners of the wires, they tell you thereís not going to be any new quarters.

But with the modern capability and high power silicon switching, the modern capability in software and the modern capability in centers, all of which didnít exist as commercial product a decade ago, existing quarters, existing electron pipes can be upgraded with silicon and software to such a significant extent that a great deal of not only the carrying capacity of the existing network can be improved, but the reliability of the existing network can be improved.

So there is actually a parallel path possible here.  You need more local generation, the wire is going to get shorter, local right down to, in the basement or on the road if itís a critical facility, and you need a better grid not just to move the power from far away and share it, but in fact as Peter noted, a lot of the local generation becomes economic when it can share itself with the grid.  Sharing back up the food chain requires technology and legislation and regulations too by the way, that will allow a real time instantaneous synchronization. Remember electric moves at the speed of electricity, itís not, itís not gas and oil. 

So I think bad things happen just as fast as good things, and you have to prevent them in real time, in the synchronizing real time very fast switches, and you canít have big electric mechanical switches and a guy in an overall is going down to the basement and pulling a switch, clunk when itís time to have something happen. It has to happen at computer speeds with, with power silicon.  Those capabilities now exists.  So the combination of the incentive of these events and the technology thatís available, might now create an environment in which the bottom line will happen, which is more and better.

MR. STEVEN MALANGA:  Questions from the audience?  Yes.  Wait for Paul.

AUDIENCE MEMBER: Thank you. This is for John Gilbert who seems especially knowledgeable about governance issues. You casually mentioned Article 10, but what specifically can New York State lawmakers do to counteract the powerful centripetal tendencies that Peter Huber outlined, and ensure that there will be more efficiently scaled generating facilities close to major users like New York City. 

And what can the New York Power Authority and the New York State Public Service Commission from whom we havenít heard much, do?  Do they lack mandate or is there some other reason they havenít done what they need to do?  Can you, can you just give us some suggestions of the state level.

MR. JOHN GILBERT:  I wish I had an answer for that question um, Betsy. I think first and foremost, we brought a building in err, lower Manhattan in December of 1999. And we looked at, we wanted to create our own power generating plant within that building. We had the space.  But when we looked at the environmental review process that it would take, weíd still be in that environmental review process right now.  The building would be vacant and weíd have um, a big IOU to, to the bank. So I think the first, the first and foremost, the environmental review process has got to be analyzed. I mean itís a ridiculous process, anybody who wants to create their own generating capacity, and this was, this would have been, there are certain thresholds of, you had to hit, and I donít really recall what it is, maybe Peter may know, um, that youíre either out or in of that review, and we would have been over because we would have needed the load that we wanted to generate was, was, was great.

Letís be clear on a couple of things.  Number one, fuel cells arenít there yet.  You know we, there are a few buildings that, that have incorporated this technology.  Weíve looked at it, it is still not there.  Photo, photovoltaic solar energy, will only work on the commercial side if you have commercial net metering. That is something that the, that right now thereís legislation. If you own a house in the state of New York right now and you put photovoltaics on your roof, and youíre not, the load is zero because youíre at work, your meter actually starts to go backwards so that youíre, youíre, youíre putting electrons back into the grid that are being created by the use of the sun. Again, Peter Huber and Mark can give you the numbers. Those are very, very expensive electrons as well.  But nonetheless, that is a technology that is close, close to being economic.

Wind, wind makes money believe it or, and youíre going to, thatís a tough issue for New York and where weíre going to put the wind turbines, maybe out in Jamaica Bay or, or some place like that.  But if the environmentalist stopped a turbine from being built on the tip of Montauk, they sure is not going to have a field day if we try to do it within the environs of, of the City of New York.

Back to your specific question in terms of what the legislature should do and what our political leader should do.  Number one, get back to the table, figure out what to do on Article 10 and get that done, period.  Secondly, from a local level, weíve got to start identifying sites within the City of New York, and if we need 10, letís identify 20 and begin to identify those areas of the city right now that have those three major resources, natural resources that you need which are access to high pressure natural gas, access to the grid and water. Those are three pieces that you need.

And, and Peterís tight.  The 3,000 megawatts of gas-fired turbines is not a long-term solution, far from it. The good news is I think is that, and I would love to sit here five years from now with Peter and weíve got 3,000 new megawatts online and we can have that discussion about price stability. And I'm, I'm convinced that itís going to be a heck of a lot better, if we build than we donít.  Well, whether we have a definition of price stability, thatís, thatís a great question to debate and I hope we have an opportunity to debate that that we build these plants. 

So, thatís probably a long-winded answer to a well-constructed question. I donít know if I hit it all, but the first thing is get back to the table Article 10. We really need long term planning and, I mean, you know there are a lot of folks and I apologize to any planners in the room, but you know, I think it was err, Jack Ruden [phonetic] who likes to tell this story of a, um, a famous architect who once called the planner somebody who never built anything um. And I apologize, again apologize, those arenít my words, but this has to be planning with, with real life practical results at the end of the planning process, not just a planning process that youíre going to create a book, put it on a shelf, and no oneís going to pay any attention to it. 

We have to deal with these issues today, right now.  Because when you analyze the problems and whether theyíre local or global, whether youíre dealing with food, whether youíre dealing with poverty, whether youíre dealing with, with ultimately employment and disease, all of them flow back to whether or not we have enough power and clean power that can ultimately produce those goods and services in a way that makes sense for our economy. It really all comes back to energy.

MR. STEVEN MALANGA:  Yes.

AUDIENCE MEMBER: I, Iím a true believer that you have to get more energy plants in New York City, I'm a Westchester person. But I wanted to, to go and talk with Mark Mills for just a bit because my understanding is that our transmission lines have been beefed up about 60 megawatts, and that we are in you know, a stoppage at that point. And yet we have all this power that they do not need, not all of us, but there is some power from upstate that could come down to us, and be used in areas you know, Putnam, Westchester, and some to New York City. 

But do we need the public partnership investment to get this going, weíve also talked about windmills if weíre generating capacity upstate which is where the windmills are, how are we going to get the transmission down. So I do believe we need also transmission lines, and that also helps the stability of the grid. Um, could you explore that a little bit?

MR. MARK MILLS:  The err, I donít know the specifics of, I actually that New York Power Authority has been one of the leaders incidentally in the, in the technologies of upgrading existing lines, with TBA and, America Electric Power, thereís been a few utilities in the country that have been working those technologies. 

Itís not just carrying more capacity, in fact very, very, very little of all the available technology have been deployed anywhere, including New York City to upgrade the lines.  Thereís fair amount of room to upgrade the lines.  The critical thing is not just upgrading for carrying capacity, itís for response to control. So when bad things happen somewhere else, you can isolate yourself and the amount, the guy who misbehaving, and thatís not how the system is really set up right now.  Itís basically set up so the misbehavior isolate himself, prevents spillage to his neighbors. And so that design is necessitated by history, but that should be changed.

Thereís two issues that we can flake and this is part of the centripetal, one centripetal forces.  You can certain put windmills, and where windmills want to be is where theyíre cheapest and gets lots of wind which tend not to be where people are, on average, you know, ridge top and top of mountains.  And so you have to find ways to get that power to, to where people are, which means they, no matter how good the lines are, if you just increase the capacity of the existing lines that carry that power which is feasible, it cost money, err, you have not increased the reliability for the endues, you in fact decreased it. 

So youíre always bounce to economics of cheaper power from wherever it happens to be, whether itís coal far away or windmills far away or nukes far away, they tend to be far away when itís cheap.  Itís just the nature of the beast.  Tends to be more reliable when itís closest which makes it more expensive, so the policy, [unintelligible] thatís so tough. How you do it is, is, back to this, somebody has to, if itís a monopoly and legislative bodies and regulatory bodies can simply permit the expensing of it, and our rate base, so that weíre going to spend another billion dollars in upgrading the lines to make them more reliable and higher capacity and pass it through it.  Those are very difficult decisions to make any time, theyíre probably more difficult now just because of the nature of, of capital spending and the economy at large.

So itís a, as Peter Huber pointed out, that you know, gas, gas electrons have high, uncertain in future cost, but they have one thing thatís sure about a gas plant in New York City. You can almost guarantee it will be more reliable in windmills in upstate New York, in terms of average reliability. Thatís just, just a fact.

So itís back to Johnís point, itís long term planning. You have to balance these, and we havenít had, Iíve been I said earlier to hundreds of hearings, testified at dozens.  There hasnít been long term planning really, of public private collaboration or long term planning electric power for 20 years in any significant level. I maybe slightly overstating it, but I think Iím not agree to say overstating it. Miserable state of affairs when it comes to long term planning. Weíre doing it reactively now, on things that have to last a century, and it required decades to build sometimes.

AUDIENCE MEMBER: Thank you. I'm going to address this question to Mr. Gilbert, but it really is in part from the other speakers, so you guys will decide on how you want to answer it.  But when I listen to the panel as an overview, I hear a bunch of different issues that are really actually relate back to the critical power white paper, but in Mr. Huberís statement about these err, 300 megawatt plants being built and tying it back into Mr. Gross and the other statements, then you still need the, the host for the thermal energy.  So unless you could say a 300 megawatt plant and find a local host for the thermal, inherently youíre going to be err, not efficient because you just donít have again, your power near your load, which is the theme of your topic, the theme of your presentation.  The power needs to be red alert.  So even at 300 megawatts, and even though it might be within the radius of the five boroughs, it still may not be local to your load. 

The other issue that brings with it, is according to your analogy of a multi-tiered generation transmission, local network, ready to the building service entrance analogy, youíre still interdependent on the 2.8 million miles of network distribution that Mr. Huber had made mention of. So finding a thermal host and still being reliant on another tier, which is potential failure for your grid, it would have to raise some, some questions.

In regards to what would be a different solution or different proposal, um, when you speak about grid reliability as Mr. Gross said, had mentioned, um, thereís a new pending or new pass standard, the IEEE 1547, which is a general interoperability, itís going to allow everyone to interoperate with their grid supplier in the same fashion without a marked and entrance barrier.

MR. STEVEN MALANGA:  Excuse me, could you get your question please?

AUDIENCE MEMBER: I guess my question -

MR. STEVEN MALANGA:  [interposing] I understand, we need to move along.

AUDIENCE MEMBER: I guess the question is, have you looked at smaller plants that are locals for the loads?  Smaller recip gas plants, smaller recip diesel plants that will be located at the load.

MR. JOHN GILBERT:  As I stated, I'm in favor of you know, the answer to this whole question in, in its most simplest term, and I'm just a real estate guy so I got to think in simple terms, is to figure out how to use less and how to make more. Whatever, as long as, you know, is conservation important?  Yes.  At the best, at the best case, itís a, itís a 500 megawatt answer over the next five years.  If the bucket weíre trying to fill is 3,000 megawatts, you still got 2,500 left. What are you going to do? 

The answer to that question really comes down to here we are in the city of New York.  Arguably, one of the most expensive cities to find space.  And these plants, whether youíre a 50 megawatt plant or a 300 megawatt plant or a 10 megawatt plant, needs space. And it needs access to high pressure gas, if itís going to be gas fired. I didnít hear anybody up here talking about burning coal, you know, and I'm the guy who discovered you know, the fact six, seven, eight years ago that the City of New York, a third of its high schools were still burning coal to run boilers.  Now no one is saying we got to go back to coal, but what we do have to do is to figure out ways to use less and make more, whatever that is. Whatever that is, thatís what weíve got to do.

A piece of that is going to be distributed, distributed generation, I hope, because I believe that that, if youíve got the space and if youíve got the ability to do that and if youíre not trying to retrofit it into an existing building which is darn near impossible to do, then thatís, thatís a component.

Photovoltaics, hey, letís hope figure, they figure this technology out, you know, so that we can squeeze some more electrons out of those wafers.  Um, so itís really all of the above. If anybody walked in here today thinking that there was just a magic wand that we were going to wave and the problem was going to be solved, sorry, Iím not smart enough to, to tell you that. The reality of it is, use less, make more, whatever fits into that rubric, letís go do it.

MR. PETER GROSS: I think there are three problems with distribute generation. Number one is the permitting the environmental issue, which was discussed, yeah, thatís very difficult to dissolve. The second one is economics, err, thatís probably the most difficult and has to do with primarily, primarily has to do with the volatility of natural gas, because after, actually the, we can discuss this all day, day long, but the answer here is that natural gas, if youíre talking about distributed generation, on site generation plants, itís natural gas today whether if, whether itís turbines or fuel cells, you still have to have natural gas.

The price of natural gas is, is, has been extremely volatile in the last few years, err, it goes from about $2 per million BTU, British thermal units, to about $10. Err, today is, if I'm not mistaken around $5, a year ago it was $3 and err, the expectation is going to go, much, much further high, much higher than that.  And if you plant a power plant like this, you have to have a um, you have to have visibility for about 20 years in order to, in order to make this the proper economics analyzes.  Whether you can have these or you can do other things in order to make this economical, thatís, thatís another story.

Finally, the third, the third problem is, is technical, is engineering.  The standard you just mentioned, the 1547 has not passed yet. Engineers are pretty difficult people to get along with each other and err, they still have not agreed on a set of standards instead of technology err, measures that will make these err, very complex interconnected grid reliable enough and itís going to probably take another year or so until weíre going to have a technical document which will organize the way this err, distribution generation plant are interconnected with the, with the rest of the grid.

MR. STEVEN MALANGA:  Thank you.  Iíd like to thank you all for coming today, and Iíd like to thank our panelist and err, I'm sure this discussion will err, continue. [applause]

[END OF RECORDING]

 


Manhattan Institute.

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Manhattan Institute Morning Symposium

Speakers:

Peter W. Huber

John Gilbert

Mark Mills

Peter Gross

THIS TRANSCRIPT HAS NOT BEEN EDITED, AND MAY CONTAIN TYPOGRAPHICAL OR PHONETIC ERRORS.


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