Brittle Power- PARTS 1-3 (+Notes) - Natural Capitalism Solutions

Chapter Four: What Makes the Energy System Vulnerable? 45investor confidence, and the like—may cripple General Public Utilities evenmore than the direct costs of the clean-up or of buying replacement power.High capital intensity also commonly reflects a degree of complexity thathampers diagnosis and repair of faults and limits available stocks of costlyspare parts (Chapter Six). The corresponding managerial complexity placesadditional stress on another scarce resource, especially scarce in emergencies—theattention of gifted managers.Another result of high capital intensity is limited ability to adapt to fluctuatingdemands. High demand may require new capacity which the suppliercannot afford, while lower demand reduces the revenues needed to keep payingoff the high capital charges. In this light, the Natural Gas Policy Act of1978, passed in the wake of the 1976–77 winter gas shortages and givingabsolute priority to residential and small commercial users, may have a perverseeffect. 47 These users, who under the law may not be interrupted, havethe most temperature-sensitive demand—their needs go up the most in coldweather. Industrial customers, who must be interrupted first, have the leasttemperature-sensitive demand. In a cold-weather gas shortage, a utility withmany uninterruptible customers might reap windfall profits from unexpectedextra sales. At the same time, a utility selling mainly to interruptible industrialcustomers might go into the red by losing the sales it was counting on topay its capital charges, which continue regardless. To maximize profits, utilitiesmay therefore seek to raise their proportion of uninterruptible, temperature-sensitivecustomers to keep from going broke. But this would increasetotal national vulnerability to a cold-weather gas shortage.Long lead timesThe many (typically about ten) years required to build a major energyfacility contribute to its capital cost and investment risk. Long lead timerequires foreknowledge of demand, technological and political conditions,and costs further into the future, when forecasts are bound to be more uncertain.This uncertainty imposes a severe financial penalty on bad guesses, especiallybuilding more plants than turn out to be needed—a diseconomy of scaleconsidered further in Appendix One.Frequently, long lead times require that major developmental facilities bebuilt, or at least their designs frozen, right on the heels of finishing earlierplants—before enough operating experience has been gained to show wherethe design needs to be improved. This tendency to run ahead of sound engineeringexperience tends to encourage costly mistakes which may seriouslyaffect long-term energy supplies. Congress’s decision, in the panic following