It’s like déjà vu all over again

What a fun French phrase!  You no doubt know this originated when Yogi Berra witnessed Mickey Mantle and Roger Maris repeatedly hit back to back home runs.  The psychologist Edward B. Titchener in his book 1928 A Textbook of Psychology, explained déjà vu is caused by a person having a brief glimpse of an object or situation, before the brain has completed “constructing” a full conscious perception of the experience. Such a “partial perception” then results in a false sense of familiarity.   Scientific approaches reject the explanation of déjà vu as “precognition” or “prophecy.”  I have to admit I am suffering from this right now, despite the science that says it is not prophetic.

I have been told that the energy industry is like a big rock.  If you stand still in one spot around this rock, ideas will work their way around that rock and appear timely and correct again … you just have to wait long enough.  That certainly seems to be the case with distributed generation.  I can remember lots of things that were in vogue 20  and 30 years ago and now watch with amusement that today’s new crop of utility managers feel they are new and novel.

How soon we forget.

The electric utility industry started out as distributed generation and electricity was frightfully expensive.  It was only affordable to the rich and famous.  Before that, industrial firms located along rivers and used hydropower to provide mechanical work.  Farmers used windmills to pump water and to process grain.  Once electricity was invented, DC motors were employed to take this mechanical work and produce energy that could be moved more effectively through wires to the points needed.  Edison’s first power plant was a Diesel, engine-driven DC generator.  That was the beginning of the central station power plant and the only use was for street lighting.

The economy of central station power plants and the inexpensive delivery of that energy over the public highways of electricity distribution systems made the local generation by even rich people uneconomic.  That is, until fuel prices cycled through their low points and made it economically interesting for almost anyone to get into the business.  That has happened numerous times in the past.

Low natural gas prices in the 1950s spawned a series of projects, mostly using reciprocating engines since gas turbines were not commercially available in this format quite yet.  They were almost all abandoned within about 10 years once natural gas prices moved back up on to the fundamentals of fuel price parity.  Customers grew tired of tending to these maintenance and operational distractions.

Tax credits and a fear over our dependence on foreign oil spurred a bunch of projects in the early 1980s.  It is funny to remember that natural gas was banned as a fuel for utility power plants back then.  Check it out.  It was called the Fuel Use Act.  It was passed in 1978 and then repealed in 1987 due to low fuel prices.  Cogeneration was encouraged with PURPA in 1978 as well and persists today, but almost no one takes a really close look at today’s operational performance to see if it passes the minimum thresholds set by that legislation.  Today’s natural gas prices are so low no one cares.  It strikes me as somewhat humorous that today’s electric utilities are so quick to try to adjust their standby and backup tariffs when the first defense to illegitimate projects is the thermal standards themselves as the law exists.  Customers have no rights to fair standby or backup tariffs unless and until they meet these standards.

If you are old enough, you may also remember when the speed limit was reduced to 55 mph at the same time in the late 1980s.  With all the talk about energy efficiency and café standards, why in the world was that allowed to expire?  Oh, right, I forgot how inconvenient it was to travel at that speed.

Just recently, the speed limit on our loop around Atlanta (Route 285) was raised from 55 mph to 65 mph.  I think the reason was that no one was driving 55 mph on it anyway, so they might as well raise it.  It does make you feel better when you can do 65 mph because otherwise you are only averaging 5 mph during rush hour.

My biggest fear of déjà vu is that fracking now has us believing we are in for a long future of low gas prices.  It seems like no one believes natural gas prices could rise in the future.  I have been shocked to see electric utilities run to natural gas and abandon coal.  Where is the sense of portfolio risk management?   I get the environmental impacts, but I am troubled by the prospect that the abandoned coal plants will not be operable in the future.  The employees being let go cannot be replaced in any reasonable period of time.  The skills will be gone.  Coal is a very difficult fuel to burn.

It is amazing to me that we have forgotten the history of natural gas being at price parity with oil over the long haul.  Sure, we seem to have way too much natural gas here in the US at the moment.  Why isn’t anyone worried about that?  Does anyone realize what would happen if natural gas returned to its historical fundamental of price parity with oil?

So, let me give you a dose of reality.  Let’s assume today’s price for oil at around $100 a barrel is a good planning value.  There are about 6 million Btus in a barrel of oil.  Let’s make the math easy and say that oil is around $16 per  million Btu or about $1.60 per therm.  A therm is defined as 100,000 Btus.  Natural gas right now is less than one third of that.  Yes, oil is three times as expensive as natural gas.  What my friends do you think will happen when the supply/demand balance swings back to parity?  What would happen if just one environmental accident threatened the fracking industry in the US and shut it down, even just for a year or two?

Yep, you have it right.  Americans would be almost bankrupt in their home heating bills. Electric utility electricity prices would double almost overnight. It would be just about as bad as the market crash in the 1930s on our economy.  People would be choosing between heating and eating.

How can we sit so calmly today with the specter of this on the horizon?  I have asked this question to many leaders in the industry and they say “Joel, everyone in the fracking industry knows the success of it depends upon the industry policing out any chance of an environmental risk.”

Well, frankly, I don’t find that comforting any more than thinking about the vulnerability we have to terrorists in other areas.  All it would take then is for one malcontent to do something terrible here.

Let me therefore raise my concern.  My wife calls me Dr. Doom because I can always see the dark side of how things can go wrong.  I call it Cassandra’s curse.  Let me not dwell on this but just ask that you internalize what I am saying and take it to heart.  Stop arguing the counterpoint.

What if I am right?  How would you feel at some time in the future having not done what you should start to do now, and facing the ruin to the American way of life as we know it now?  Don’t you think you should be working to balance out the supply side risks by explicitly admitting this is a risk to everyone in the market?  How can you sleep at night without cautioning your customers that this is a national risk?  I hear so many other less significant risks being discussed all the time like energy efficiency and demand response.  This single unmitigatable risk could cripple the United States, and at a time we can least afford another financial setback.  Where is your sense of conscience?

I am not arguing against distributed generation.  I am only using it to point out how we tend to go around the rock.  We are going to work our way around this rock.  But, this time, when you say “It’s like déjà vu all over again” it won’t be funny as in Yogi Berra’s day.  It won’t be funny at all.

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