Ask the right questions of the right people at the right time and you stand a good chance of ending up with good policy. Advice as good today as it was 2,500 years ago when Socrates first applied it to weighty issues of the Greek day like democracy, justice, right and wrong, fair- ness and piety. It is called the Socratic method. It does work.
Canadian electrical policy going forward could stand a dose of the Socratic method. The consequences for our stan- dard of living and quality of life of choices we will be mak- ing are huge; the risks and uncertainties accordingly large; the costs in dollar terms mind boggling; and the politics a legal, jurisdictional and emotional minefield. The issue now should not be what choices to make but rather how to set the table to make the choices.
Some of the questions follow with a short discussion out- lining the issues. Before policy is made, questions like these need to be answered in detail and with openness, transparen- cy and clarity. Not getting electrical policy right really does matter and not only because the dollars involved are so big.
Our way of life is critically dependent on a continuous flow of electricity into our homes, offices, factories, hospi- tals, stores, banks, farms, etc. Words like ”œcritically” are regularly misused in today’s hyperdramatic world, but in the case of electricity critically really applies. Not only are you in the dark without electricity, but you cannot heat or air con- dition your home; cook dinner; keep food refrigerated; pump gas for your car; get up an elevator; get e-mail; get from A to B on a subway or airplane; or pay with a debit or credit card for a flashlight, battery, firewood or anything else. Without electricity, cash is once again king, but indignity of indigni- ties, the ATM that gives the cash needs electricity too.
Electricity going off has gone from being a nuisance 75 years ago to a catastrophe today. For proof, ask the 50 mil- lion people in Ontario and the north-eastern US what life was like after 4:10 p.m. on August 14, 2003, when the elec- tricity abruptly went off in North America’s biggest ever power outage. Just negotiating a busy intersection suddenly without traffic lights was an achievement! August 14 showed with blinding clarity how vulnerable we are to electrical interruption. Imagine if it had happened in January at -20ºC Or, ask those in Virginia and North Carolina who were without elec- tricity for weeks because of September 17, 2003’s Hurricane Isabel. Or ask the 57 million Italians who lost power on September 28, 2003, in Italy’s biggest outage since the second war. Could Michael Faraday, James Clerk Maxwell, Charles Augustin de Coulomb and André Marie Ampère ever have imag- ined where their electromagnetic and electrodynamic science would take us?
One reason, then, why we should be inter- ested in electricity is we have a critical need for electricity that may be getting increasingly and dangerously out of line with the infra- structure required to accommodate the need. In management, they say a good scare beats a good plan any day. For us, August 14 was that scare. August 14 may have begun with a transmission line in Ohio; September 28 in Italy with a transmission line in Switzerland. That is vulnerability. It is important for us to get to the bottom of whether August 14 was a random event explained by unfortunate breaks of the game or evidence of systematic and deep-rooted instability and unre- liability.
A second reason for us to be inter- ested in electricity is the Kyoto Accord. Kyoto limits the emissions of greenhouse gases like carbon dioxide in an effort to halt global warming and its worrisome implications for the way we live. Kyoto and the scientific evi- dence backing it are both suspect and controversial. Regardless, Kyoto may be just what the doctor ordered for Canada. Canada has considerable undevel- oped capacity to generate electricity with water in BC, Manitoba, Quebec and Newfoundland; so-called hydro gener- ation emits no material greenhouse gases, unlike electricity generation from fossil fuels like coal, oil or gas. Kyoto could be a hydro investment bonanza for Canada and its water rich provinces. Kyoto has enormous impli- cations in its own right for Canadian electrical policy.
The transmission grid is the third reason why electrical policy is worthy of our attention. The North American transmission grid interconnects regions ”” provinces and states ”” enabling those in need of electricity to get it from those who have excess, while at the same time generally increasing everyone’s reliability of sup- ply. By any standard, the grid is a stun- ning technical achievement. The trouble is it may also be an aging patchwork with vulnerabilities that August 14 dramatically exposed. Former US Energy Secretary Bill Richardson has called the US (and by extension us) ”œa superpower with a third world grid.” Studies will eventu- ally clarify exactly what happened to the grid on August 14. Regardless, August 14 raised the issue of whether Canada needs much stronger transmis- sion interconnections between the provinces ”” a national transmission grid ”” that would facilitate the accel- erated development of untapped Canadian hydro power and at the same time increase reliability of supply to Canadians. A national transmission grid and accelerated hydro develop- ment are also enormous policy issues.
The overriding goal of Canadian electrical pol- icy should be the reliable availability to Canadian consumers, businesses and governments of sufficient reasonably priced electricity to indefinitely sustain a modern, high performance, high standard of living and an internationally competi- tive economy. Expressions like ”œreliable availability” and ”œreasonably priced” need to be developed and quantified. Poor defini- tion around goals just about assures accordingly poor policy choices, execu- tion and results. If you do not clearly know where you are going, any policy road will get you there. The chances you will like it there, once there, are low. Now the questions get a whole lot tougher. The emphasis will be on why the questions need to be properly answered, not the answer itself.
Reliability depends on genera- tion and transmission capacity. All other things equal, the more genera- tion and/or the more transmission, the more reliability. But the more of either, the greater the cost. Ballpark, think two to three million dollars a megawatt of generation and a mil- lion dollars a mile of transmission. In the electrical world, you get into the billions fast.
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Because of cost, major generation and transmission decisions are for all practical purposes not reversible. They are very long-term decisions. Therefore, a clear understanding of the value of incremental reliability is para- mount before Canada makes any major electrical policy decisions. Specifically, we need to quantify the benefits and costs of incremental addi- tions to reliability. In the absence of those benefit/cost relationships, poli- tics, self-interest, emotions, percep- tions, half-truths and who can talk the loudest and fastest will drive policy. Coming to grips with the financial, investment and other trade-offs at the national as well as the provincial levels will be no small trick; our electric util- ities are provincial enterprises with provincial regulation.
Provinces with undeveloped hydro capacity have an economic development self-interest in seeing enhanced interconnections between the provinces, especially if someone else picks up a healthy part of the cost ”” read, the federal government. But the issue is reliability and the costs and benefits of incremental additions thereto.
Enhanced transmission intercon- nections between the Canadian provinces are but one way of improv- ing reliability. The economics of east- west grid options need to be thoroughly and objectively developed and quantified, but we are shortchang- ing ourselves if we do not analyze the north/south options and east/west ”” north-south combination options with similar thoroughness and objec- tivity. A national transmission grid is not a stark either/or game.
I know of no country that defines its being or essence in electrical grid terms, though nationalism issues will undoubtedly enter the debate. The more we focus on the best way to ”œkeep the lights reliably on at the least cost,” the more likely we are to end up with good electrical policy. Whatever transmission grid arrange- ments we make, it is vital that we be a full partner in the fullest sense of the concept.
The history of Canadian electrici- ty is an unending debate about whether assets should be publicly or privately owned. My own view is reg- ulation and management are more important than ownership structure. The regulator plays a defining role in crucial investment, pricing and timing decisions; management runs the utili- ties. Whatever the ownership struc- ture, it cannot be saved over time from weak regulation and weak man- agement. Good regulation and good management make everyone look good. We need to ask a lot of ques- tions about what the regulatory regimes and processes of the future should look like. Contrary to some opinion, privatization and/or deregu- lation do not explain all of what ails our electrical world.
Hydro is a generation source that competes with nuclear, coal, oil, gas, wind and so on. It is no more and no less. It has special advantages, for example, relative environmental friendliness, but special disadvantages too, for example, the exposure to lengthy drought. Before electrical pol- icy is made, we need to understand the long-term comparative economics of our generation options better than is presently the case. Informed assumptions are required on where various generation technologies are headed. For example, might techno- logical advance and creative market- ing make nuclear a good way to go again? We have national grid transmis- sion options along with options involving the North American grid.
We have a host of generation options. Clearly we need to specify feasible joint generation/transmission options and evaluate them. This is not a small task. Just getting beyond federal/ provincial jurisdictional issues will be difficult. But the dollars involved are not small either. We are talking tens of billions. Certain generation/transmis- sion options will have economic devel- opment benefits and costs; these can be factored in accordingly. As for the analysis, it should be state-of-the-art: sophisticated risk and uncertainty techniques; simulation; multiperiod relationships; sensitivity analysis; net present values/internal rates of return/benefit cost ratios; and capital market inputs like interest rates, exchange rates, cost of capital. A long- term macroeconomic forecast will also be required; how the macroeconomy and its regions go will tell a lot about how much electricity we are going to need and where.
Good old-fashioned economic analysis is fundamental to good electrical policy. Getting this piece of the policy development puzzle properly in place is crucial to a good policy outcome. The root of policy failure is often in the analysis phase; it can be the least thought-through part of the policy process. If this table is set properly, the analysis will go a long way to dictating where we should go with elec- trical policy. If not, we could end up anywhere. Canada has a long history of royal commissions, provincial commissions and public utility regulatory hearings. Some com- bination of these that gets officials in front of informed tribunals that have the power and resources to commis- sion the studies needed would seem to have a lot going for it. No one should expect that this stage will be either fast or cheap. Now is a good time to start the planning.
Policy making is always some- thing of a crapshoot. Whether choices are good or not ultimately depends on how the future unfolds, and the future is always a haze at the time choices have to be made. Nonetheless, experi- ence overwhelmingly confirms policy has the best chance when the process is transparent and the information and analysis honest and complete. Electrical policy is important enough that it is worth assuring up front that we end up with such a process. Setting the table so the right questions are asked of the right people at the right time is the key. Socrates is the man!