Energy Markets:

Author Richard Munson talks about path forward for U.S. electric grid

After a massive blackout hit the Northeast in August 2003, lawmakers and energy experts called for sweeping changes to U.S. energy policy. But did last summer's energy bill adequately address the problem? And what actions should the Federal Energy Regulatory Commission take to prevent future power outages? During today's OnPoint, Richard Munson, author of the book "From Edison to Enron: The Business of Power and What It Means for the Future of Electricity," answers these questions and looks at innovation happening at the state level. Plus, Munson, also director of the Northeast-Midwest Institute, talks about why cogeneration could be a significant new source of power generation.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining us today is Richard Munson. He's the director of the Northeast-Midwest Institute and also author of the book "From Edison to Enron: The Business of Power and What It Means To the Future of Electricity." Richard thanks a lot for being here today.

Richard Munson: Thank you for having me.

Brian Stempeck: Back in 2003 you talk about in the book how we had the major blackouts sweeping the Northeast. There was a lot of talk in Congress at the time about what to do about this. Last summer we saw the energy bill passed. How much has really changed since that blackout to address some of the problems with the nation's transmission lines?

Richard Munson: From a policy perspective, unfortunately, not a whole lot. The energy bill, at least in my perspective, was largely just an array of subsidies to those lobbyists that happened to be the most powerful and well connected. But they really didn't have any vision about how to advance efficiency or innovation within the electricity industry. And the potential is just enormous. There are an array of new technologies that are out there, but unfortunately we're sitting in a position where we've had policies over the last like eight or nine decades that have been focused on either protecting or promoting the status quo. Which are old technologies and regulated monopolies, which have no incentive to innovate. We need to change.

Brian Stempeck: What are some of the causes behind that blackout? And what are these technologies you're talking about that could really address these problems?

Richard Munson: Well, most people when they think about alternative technologies they think about the new sexy ones. And they like solar photovoltaic. They like fuel cells, wind turbines and, depending upon your political perspective, other people like coal gasification or nuclear power. But there is an array of new technologies that are out there that most people simply ignore. I was recently visiting a bunch of steel plants on the southern shore of Lake Michigan and an entrepreneur there has installed a series of turbines that capture the waste heat coming off the steel smelters. It's not all that sexy. It's actually somewhat dirty and kind of dull. But he has captured, over the last couple of years, the equivalent of a nuclear power plant. And policymakers don't even notice. Environmentalists pay it no attention. But the power coming out of these recycled energy plants, you're not burning any additional fuel, you're not releasing any additional emissions. You're capturing what had been waste. It's a wonderful resource. And there's thousands of megawatts of potential of things like that, back pressure steam turbines, micro-turbines, the array of list of innovative technologies goes on and on.

Brian Stempeck: Basically ways to add power to the grid without necessarily building new turbines and new power plants.

Richard Munson: That's exactly right. But what we need to do, however, is come up with a series of, busting the barriers that are policies that are now in place that were there designed to protect monopolies. And by allowing entrepreneurs into the market these new technologies will bring efficiency, which has been sorely missed in the electricity industry.

Brian Stempeck: Talking about this whole kind of cogeneration combined heat and power idea. You have an interesting story in the book where you talk about MIT wanting to basically build their own cogeneration plant, which faced a lot of resistance from the local utility, from state regulators. And was basically barely able to get the thing built. Talk about what happened with MIT.

Richard Munson: Well this is MIT. This is not a slouch either to power or engineering clout. They wanted to have their own power plant on site. But the local utility, as you might guess, didn't want to lose the load. They didn't like competition. So they came ...

Brian Stempeck: Losing a customer.

Richard Munson: Losing a customer. So they came up with barrier after barrier. And even the regulators, which you would think would look at MIT and realize that this new technology was going to reduce pollution significantly, they didn't want to change because they're just bound by seven, eight, nine decades of just thinking that we have a system. And that is monopolies that have no competition, that are regulated by them. And so change is very hard in this industry. You have to realize that electric utilities are this nation's biggest industry. I mean they have assets of $600 billion. It's huge. And thinking about changing that takes a fair amount of time.

Brian Stempeck: You also talk about, in some of the Southern states, this kind of thing is basically not allowed at all. You can't actually connect a power line to these certain cogeneration plants.

Richard Munson: The situation across the United States just varies dramatically. And yes, in the Southern states they are not happy at all. The regulated utility monopolies would like to remain regulated utility monopolies, thank you very much. But the problem is you have to realize that this model has caused us to lack innovation and have terrible efficiency. Think about the fact, just a couple of statistics, the average power plant in this country was built in 1964 using technology from the 1950s. The industry has been stagnant in their efficiency for over 50 years. What other industry can say that? That means that for every, if you will, two lumps of fuel that we burn we're wasting, well, for every one lump of fuel that we get of electricity we get, we're wasting two. Some two-thirds of the fuel that's burned to generate electricity is basically wasted.

Brian Stempeck: You actually talk about it in the book. You say that Americans right now are paying $100 billion too much each year for heat and power. What's kind of going into that number? And why don't we see the same level of consumer outrage over that as we do at the gasoline pumps?

Richard Munson: Well, I think we're actually beginning to see such consumer outrage, but for all the wrong reasons. In Maryland, for instance, electricity rates are about to climb, up in Baltimore in particular, by about 70 percent. And that's largely because the minor effort that we had in Maryland for deregulation basically capped rates for six year, so the rates cannot rise even though natural gas prices and everything else rose. And so suddenly the caps are off and the rates are beginning to go up. The market is going to change dramatically at this point because over these last six years, because rates were held down, competitors were not allowed into the marketplace. Now that rates are going up about 70 percent I think a whole lot of entrepreneurs are going to start coming in. And some of those innovative technologies we discussed are going to be coming online.

Brian Stempeck: What do you make of some of the innovations you see in the states? Right now on the West Coast you're seeing the Frontier Line, this major transmission project that would connect Montana, Wyoming, a lot of the coal plants there to the more, basically the demand for power that you're seeing in California. Is that the kind of thing that we need to see? I mean would you consider that to be a progressive type project?

Richard Munson: I think the most progressive states are in Texas, Pennsylvania and New York at the moment. And some of the New England states would follow behind that. And that's because they have decided that they want to encourage entrepreneurs to come into the market. They're allowing interconnection standards. They're allowing these entrepreneurs to connect to the grid. They're making sure that the monopoly does not burden them by having really high backup rates for power when they need to exchange power with the grid. They have a focus that they want entrepreneurs and they want innovation. And you're seeing, particularly in Texas, it's becoming the wind capital of the world at the moment because of these innovations and the pressure that they're putting to have a competitive electricity market.

Brian Stempeck: Is that kind of innovation, are we only going to see that on a state-by-state basis? Or is that something that FERC or the federal authorities can really encourage?

Richard Munson: The federal authorities could really encourage it. But again I think the last energy bill that we had was largely a series of subsidies to status quo technologies. It was not a vision of thinking. We need to step back and think about how do we create market signals that encourage innovation?

Brian Stempeck: You've got a new chairman, Joe Kelliher, at FERC. Do you expect him to do much in terms of embracing these ideas that you're talking about and moving forward with some kind of new innovation?

Richard Munson: I think he's following, his predecessor was really quite aggressive in this regard. And so it will be a challenge to see if he does as much to push this agenda. But I think he has to do more than simply think about what are my favorite technologies? I mean the president's State of the Union address, I mean he was quite clear, he wants nuclear power. And he's going to subsidize it to the hilt. My guess is, and ironically at the same time he will also claim that he doesn't want to pick technological winners and losers. And yet that's exactly what they're doing. And environmentalists are just as guilty of this because their argument is they want wind turbines or they want solar photovoltaics because it's their belief that they know better what the market wants. What I'm trying to argue is get out of the way. Get some of the barriers busted down and allow some of these entrepreneurs with these innovative technologies to bring them online. And I think the gains in efficiency and reduced pollution are going to be substantial.

Brian Stempeck: There's a lot of talk about in the next few weeks, about Congress moving on some kind of energy policy. Obviously largely aimed at oil and gas and reducing prices at the pump, but also people again are talking about ANWR, broader energy ideas. Do you expect to see anything in terms of some of the ideas you were talking about? Some innovation dealing with FERC, dealing with transmission lines, dealing with opening this to more competition? Will that get worked into any energy legislation this year or, you seem sort of skeptic.

Richard Munson: I'm pretty skeptical. I mean I think what they tried to do last time, again, was just let's pick our favorite technologies. And I don't think we've really seen, except on the state level, again in the New York's, the Pennsylvania's, the Texas, they're stepping back and thinking about how do we create an innovative electricity market? I don't think that's really hit on the federal level yet.

Brian Stempeck: What about looking internationally? You talk about in the book as well some of the countries that use cogeneration. I think Denmark, a lot of the kind of European countries use cogeneration and they can get their prices down pretty substantially. How much potential do you see there in terms of setting a model for the United States to follow?

Richard Munson: Though I think the models are out there from an international perspective. The Netherlands and other, you know, Denmark, are really quite ahead of us with an array of technologies. They often like to point to their wind turbines and say, "Look at how many of these we have." But they're, across the board, looking at ways to bring innovation on board, be that cogeneration systems, recycling energy similar to what I mentioned with these steel facilities on the shores of Lake Michigan. So from an international perspective this is one area where the United States could look across the ocean and learn some lessons.

Brian Stempeck: All right Richard, we're out of time. Thanks so much for being here today.

Richard Munson: Thanks for having me.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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