Chapter 2: Windpower for Dummies

Myths and Mothballs:

There are several myths out there that need debunked in order to have a clear understanding of offshore wind.

We will start with the first which goes right to the heart of why we have a handful of legislators blocking Bluewater from going through.

For reference here is the copy of the Act that started it all. If you could, click in and check out the co-sponsors of that bill. More about them later.

What about SEU as an option to drive down demand and lower prices?

Many answers to your questions can be found here, in the report to Governor Minner that predated the passage of House Bill 6, the EURCSA. The clarity of the report, ie how well it was written, can be demonstrated by the signing by the Governor on the day the act cleared the last hurdle in the General Assembly. In other words, after reading this comprehensive report, there were no other questions. Essentially this report is the equivalent of a State of the State Address on Energy Affairs, and until now, has been seen by only a handful of people.

First some background. One can understand Delmarva’s motives better if one understands how they get paid. Here is how their price structure works. There are different costs depending on which fuels are used. Nuclear is cheapest, although offshore wind may be a close second, then comes coal, and finally natural gas. Under current PJM rules (the local grid which sets both pricing and the rules for that pricing) the price that is set for the next hours fuel, is based on the price of the last bid that meets the demand set for that hour.

Let’s say the hour’s demand is anticipated to be 600 MW’s. Nuclear provides 300MW quite cheaply, and coal provides 275 at slightly more. There is still a deficit of 25MW’s that need to be acquired to meet the goal set. Gas bids on the remaining 25MW’s and since that is the bid that pushes it over the top, that is the price for all energy from all sources for that hour. That means gas gets a fair profit. Coal and nuclear get a windfall of tremendous profit since they cost far less than gas to generate electricity.

Back in the olden days, under regulation, nuclear was guaranteed a fair profit, coal was guaranteed a fair profit, and likewise gas, based on the costs of both fuel and operating expenses. You added those up together, and you get cheaper than we pay now.

Imagine standing in a line at Wal*Mart where the rules dictated that whatever the last person paid for everything in his cart, everyone else paid. Of course if someone was buying a box of tissues, we with full shopping carts would hand our receipts to the door checker while smiling….real big. But imagine if Wal*Mart got to determine who was the last person to stand in that line? Incredibly they would always placed someone with the most expensive items they could find to shore up that cart…..Bet you that tissue buyer wasn’t smiling this time as he left the store?

Again before deregulation, if our price was based more on old style economics, Delmarva got a percentage over whatever was its cost for making our electricity…..So with deregulation, we lost out.

Along with deregulation came the divestiture by Delmarva of all its generating producing facilities. Connectiv kept them, and Delmarva became nothing more than a broker. Before deregulation we paid lower costs because Delmarva actually produced and charged us cost plus percentage, which was closely regulated by the Public Service Commission. Now for all our electrical needs, we pay whatever the high price of gas determines, no matter where our energy would come from…including wind farms in Pennsylvania. Even though that wind farm might generate energy at 2.3 cents per MW, we would still have to pay the frozen winter spiked gas price of 23 cents per MW, with someone within the PJM grid keeping the difference. That by the way is why Stockbridge insists on Pennsylvania wind farms.

Bluewater would change all that. Under contract Bluewater Wind would supply a regulated rate to Delmarva, one regulated for twenty five years. This rate would not be manipulated by the PJM. This means Delmarva over the course of twenty five years could stand to lose billions, which of course would then remain right in our wallets where, since we are the ones paying them,… it belongs.

Trust me. Delmarva still stands to make a lot on selling us Bluewater’s Wind. They just can’t gouge us as much as they had anticipated once deregulation took effect. How much do they intend to raise prices? Just look at the 59% increase in 06 if you want proof for your answer. Which is why Delmarva is acting like a recalcitrant groom who pines for his future bride’s booty, without having to commit to anything in order to get it.

A third issue that forces up our rates, is interestingly enough, our geography. We are Delmarva, a long skinny peninsula with few transmission access points. Compared to a land-based market with thousands of interconnecting points surrounding it, we have but a few. That adds costs because a lot of energy is taken up and lost as heat. As much as 7 to 10 percent of electricity is lost over transmission. Since our peninsula has lots of distance top to bottom, we lose a lot. This can be fixed with a generation facility off the coast of Rehoboth. Supplying the Middle of Delmarva with less cost and more efficiency, means at least for that sector, their overall cost could drop 7 to 10 percent. That means a household paying $200 a month in summer, will be paying $180 instead, just by cutting down on transmission costs. So instead of paying Delmarva, you can afford an additional 6 and a half gallons of gasoline…..Wow. (I’d still rather have it in gasoline.)

Thus there were three reasons prices jumped with deregulation. One, PJM uses the most expensive form of energy to price the whole lot; two, Delmarva became solely a broker, divesting its generating capacity; and three, our geography conspires against us in long transmission lines from the source to the power receiver.

So now we are ready for our question:

What about SEU as an option to drive down demand and lower prices?

What is the SEU and how does it have anything to do with energy prices? Here is a copy of the meeting minutes last February just as wind power was getting under way. Again, pay attention to the list of players near the top. Who was that new member? A test will be given at the end…….

On principal the SEU is a good idea.

By making several technological boosts thorough out every household or small business in Delaware, the demand, or the amount of energy required to be supplied to Delaware, will be reduced. This is good for cutting down the amount of energy and green house gases, but does not have sufficient clout to pull down prices.

One could compare it to buying a Prius and hoping gasoline drops back to $2. As you use less, the price climbs higher so you are still paying the same to fill your tank, only now using less. Of course you would pay a lot more if you drove a 67 Camaro so there is some incentive for upgrading to a more efficient vehicle. But thinking that prices will always stay the same because of what we purchase, won’t happen. However if everyone follows suit, then some leverage can indeed be made on price, as actually happened during the nineties as cars became much more fuel efficient. Then some knucklehead came up with gas eating SUV’s. Why not? Gas was under a dollar. A fifty dollar fill-up? No problem.

The only thing that brings actual prices down when dealing with a monopoly is competition. Having Bluewater sell electricity using new technology at prices lower than that of Carbon fuels, with or without a Carbon tax in place, keeps the price lower on the supplier side. The best scenario for Delaware is to pursue both plans simultaneously. Build a wind farm off the coast, and provide energy efficient incentives to every Delawarean. Do both!

It is ironical that individual legislators who sponsor the SEU package, are the very ones holding up the Bluewater deal, which provides the same benefit to Delaware consumers: lower energy bills, less carbon dioxide, less toxic pollution.

A one-two punch using two types of technologies would go a long way to insulate Delaware from the tidal wave of Carbon fueled high prices.

Our states long term goal, needs to include both cutting down our usage, or demand for energy, and for what little energy needs we have leftover, supply them with as much offshore wind as is possible.

We have this ideal scenario almost in the palm of our hand with only a handful of legislators blocking the way………….