Sunday, August 10, 2008

The Power to Change

Last month, a splice failed in a major power cable in downtown Vancouver. The resulting explosion and fire also knocked out the utility's backup cable, which quickly clicked off the lights for 4400 customers, including several office towers. One of the affected towers houses the Vancouver Sun newsroom, which has an Uninterruptible Power Source for just such occasions. But the UPS had only enough juice for a few hours – and the power was off for three full days.

The Sun managed to rent generators, setting them up on the street and snaking cables up to its offices, and it kept publishing throughout the blackout. Other businesses didn't fare so well. Restaurants had to throw out masses of food. Retailers locked their doors. Professional offices closed down. The Canadian Federation of Independent Business reckoned that about 4800 small businesses were affected, and their collective loss ran to about $36 million. Stand by for a blizzard of insurance claims and lawsuits.

Now look, this happened in British Columbia, which has dammed innumerable mountain valleys to create massive hydroelectric plants, and profited for decades from exporting hydro power. If any province should be a poster-child for renewable energy, even surplus renewable energy, BC is it. Yet Vancouver Sun business writer Scott Simpson reported that BC Hydro's “entire system, from the dams that capture water to generate power, to the wires distributing electricity to people's homes, is maxed out.”

In fact, Simpson reported, the situation is so dire that BC Hydro has applied for permission to pay its largest industrial users to shut down their operations at peak usage periods during the winter, because it won't otherwise have enough power to serve its residential customers. It's already doing this on Vancouver Island. This is – forgive me – a shocking situation in a province which always promoted itself to industry on the basis of almost limitless energy supplies, and low power rates. Whoops.

So what does all this have to do with Nova Scotia? Well, despite the creakiness of the BC electrical system, “the reliability of service,” says Simpson, “is comparable to other North American jurisdictions, according to internationally established performance measures.” Which surely means that other power systems are equally stressed and comparably vulnerable to sudden serious failures. And, since all the grids are linked, the prospect of another big blackout, like the one that hit northeastern North America in 2003, are pretty good.

BC Hydro says that the problem is years of under-investment in infrastructure, and proposes to fix the problem by adding more generating capacity, upgrading transmission lines and so forth. It wants to increase rates by 15% and spend $3.4 billion on infrastructure by 2010 – which it admits is only a start.

To me, this sounds like an advance straight into the past, when rising demand for power was taken as a given, and squandering power was a way of life. But those days are gone. And there's an alternative. The quickest, cheapest way to solve a problem like this is to reduce demand by changing the pricing of electricity.

Power companies have always priced electricity in a thoroughly perverse way. Power rates start out high, and go down as consumption increases. But the costs of generating power run precisely the opposite way. Power companies run their cheapest generators all the time, and only bring in their more expensive generators when demand increases. In other words, power companies put their lowest prices on their most expensive power. Worse, the price structure encourages customers to waste electricity.

The immediate alternative is common sense, which in this case is called “marginal-cost pricing.” Marginal-cost pricing means that your basic allotment of electricity comes at a very reasonable cost – but power rates rise steeply as consumption increases, and more steeply still in peak hours of demand.

Proper pricing induces customers to conserve energy – and to produce their own energy wherever possible. Companies start generating their own power from their own waste heat, and charging the forklift's batteries overnight. Households buy solar hot water heaters, heat pumps and mini wind turbines. People turn off lights and run their washers and dryers just before bedtime.

In short, marginal-cost pricing rewards conservation, self-reliance and innovation, and punishes wastefulness. Overall, it reduces demand for power – and thus reduces the need for large expenditures on increasingly-costly generating systems. And the tools needed for its implementation are not power turbines, but pens and brains.

BC Hydro is said to have plans for marginal-cost pricing and conservation. It should – like all utilities – hurry those changes along. Otherwise we can expect more events like the big 2003 blackout, which shut off power to 10 million people for a day, or the 1998 blackout in Auckland, New Zealand, which lasted for five weeks. What Vancouver experienced in July should be a warning to all of us.

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