Utility Interlude: What If the Lights Go Out? (L-O-N-G)

From the Wall St. Journal. In the face of technology takeover, I keep asking you what you're going to do when the power goes out. Now, it seems it's no longer a rhetorical question!

"Say what you will about Obama Administration regulators, their problem has rarely been a failure to regulate. Which makes the abdication of the Federal Energy Regulatory Commission especially notable—and dangerous for the U.S. power supply.

Last week FERC convened a conference on the wave of new Environmental Protection Agency rules that are designed to force dozens of coal-fired power plants to shut down. The meeting barely fulfilled the commission's legal obligations, but despite warnings from expert after expert, including some of its own, the FERC Commissioners refuse to do anything about this looming threat to electric reliability.

The latest body to sound the EPA alarm is the North American Electric Reliability Corporation (NERC), which last Tuesday released its exhaustive annual 10-year projections. "Environmental regulations are shown to be the number one risk to reliability over the next one to five years," the report explains.

NERC's forecasts are the gold standard for the U.S. power system because they are built from the bottom up, starting with finely grained data from individual plants. NERC has been doing this work since 1967, and since 2005 it has operated under the FERC umbrella as an "electric reliability organization" similar to Finra, the securities regulator with quasi-governmental duties.

The threat is that the EPA is triggering what NERC calls "an unprecedented resource-mix change," with utilities switching to natural gas from coal. For the first time in U.S. history, net coal capacity is in decline. On top of the 38 gigawatts of generation that is already being run below normal levels or slated for early retirement, NERC predicts another 36 to 59 gigawatts will come offline by 2018, depending on the "scope and timing" of EPA demands. That could mean nearly a quarter of all coal-fired capacity.

According to the report, "the nation's power grid will be stressed in ways never before experienced" and reliability depends on building new power plants to cover the losses. But the electric industry has only three years to comply under one EPA regulation known as the utility rule that is meant to target mercury and is due to be finalized soon, while many other destructive rules are in the works.

Replacing power is not like replacing a lost cellphone. There are bottlenecks in permitting, engineering, financing and building a new plant and then tying it to the electricity network. Over this same three-year window, NERC estimates that between 576 and 677 plants will need to be temporarily shut down to install retrofits like scrubbers or baghouses.

All of this has been obvious to anyone paying attention. In its draft utility rule the EPA itself warned that "sources integral to reliable operation" may be forced to shut down, before it sanitized these concessions from the final proposal. Twenty-seven states say their regional reliability is at risk, concerns echoed by FBR Capital, Credit Suisse, Fitch, Bernstein Research and several grid operators. FERC's own Office of Electric Reliability produced an alarming study, before its work was disowned by Chairman Jon Wellinghoff, as we reported in the September 26 editorial "Inside the EPA."

Southern Co., the utility that covers states from Mississippi to Georgia, says the EPA's timeline can't be met "at any cost" and that in its region "reliability cannot be maintained without load shedding"—that is, rationing power to large industrial consumers. American Electric Power, which operates in 11 Midwest states, says that option may be a "last resort" as well. This is the kind of political overhang that harms economic growth.

Keep in mind that the EPA estimates that the benefits to society from the mercury reductions in the utility rule max out at $6.1 million, total, while imposing $11 billion in compliance costs annually. That is a crazy tradeoff even if it didn't endanger the electric grid.

The best option would be to kill the utility rule and put the EPA on probation, but second best is a longer phase-in to give utilities more time to comply. FERC could do some practical good by formally issuing a "215 finding" that the EPA utility rule endangers reliability. Or the White House budget and regulatory office could require the EPA to repropose the rule with more flexibility. Or President Obama could declare that the rule endangers national security. Or Congress could block the rule, though that would take more fortitude than Senate Democrats have shown so far.

None of this is likely to happen because it would interfere with the larger Administration priority to kill as much coal power as rapidly as possible to serve the global warming agenda. But when the brownouts and cost-spikes occur, don't blame the utilities. Blame their regulator."

So we're all going to suffer for the sake of a few more Democrat votes. Obama seems to have found the ticket to getting his lefty crap done without Congress: the EPA. This is the second time he's used them, and it won't be the last. Future presidents will follow his lead by using agencies to make end-runs around Congress.

So far, we've endured a 50% or more rate hike in the years since Obama took office, we're going to endure even more: possibly another huge rate hike spread over a few years (somebody's got to pay for those new gas-powered plants), accompanied by limited power use times (like in Iraq--they only get electricity 4 hours a day), and/or limiting sources (let's go Amish or Victorian with those gas lamps, please!).

This may endure quite a while since the time and bureaucracy-clearing it takes to build new energy plants is slow and cumbersome...are they going to do anything about THAT? I bet all those people who fell for the plug-in hybrid and all-electric car hype are kicking themselves now...or will be in a couple of years.

Meanwhile, since you know the very real possibility of much-reduced electricity generation is coming, I ask you how you're going to spend your precious little plug-in time: recharging technology gadgets you could otherwise live without, playing LARP games on the web, running outdoor Christmas lights all night long, or surfing the web for devices that could convert your existing natural gas into electricity.

Meanwhile, how are you going to do things like dry your clothes in winter (you can't exactly hang them out in snow country), heat your home overnight (that's probably more hours than the utility will let you use), use a food dehydrator in non-sunny months (talk about hours of use you won't have access to!), or do all the other things that require electricity when your plug-in time is severely curtailed?

Think about how that would change your entire life, from work life to home life. Work hours would change with the sky light, and possibly with the seasons. You think too many jobs got lost overseas? It would happen again, only WORSE! Then we WOULD be in a Depression! Recreational shopping would only be for the people who could afford the bumped-up pricing for the cost of electricity added onto their goods' price (a VAT tax or national sales tax in disguise)--now you know why the EPA stood by and let his happen.

America itself is being downsized. Less employed people + less businesses + fewer operating hours of electrical generation = less tax revenue, less commerce, and less luxury and convenience (as compared to the rest of the world) for most of us. It also means less internet, which would be a boon to politicians and cops, and allow them to stumble through their careers without being made into buffoons on video, or being exposed to the world as the parliament-whores they are. All this downsizing lightens the debt and expense load without having to go through Congress to get it done. It also slows down the flow of information so the Powers That Be can once again be in the lead, and not be led by the people.

I see us slowly making our way back to an age where all these electric things didn't exist, because electricity was for the rich only. By the time our country gets it's butt in gear and solves this reliability dilemma, we will have moved on to natural gas, natural gas conversion, batteries, solar, wind, or gone manual and just eliminated reasons for all that plugging in.

To get a head start, why not begin thinking about what you could pull the plug on right now? I know many of you (me included) have already ditched the TV and the accompanying service (cable or satellite), cut back spending to the bone or nearly so, filled the house with low-watt bulbs, and some have even pulled the plug on their favorite friends (the freezer and refrigerator), but what else can you "go manual" on in preparation for this upcoming potential disaster-in-waiting?

And here I thought an EMP pulse would be the thing to do us in...once again, we (the bureaucracies) are our own worst enemy.

Some utility companies have already put us on a consumption diet by instituting time-of-use billing and schedules, but many of us aren't aware of them, so we continue to use on-demand and pay the on-demand prices each month. But what do you do when adherence to the schedule, filling the home with LEDs, and voluntarily unplugging and doing away with many electrical items still isn't enough to ensure steady electrical availability when you need it?

What if they can't fix it? What if it never recovers? Is anyone making plans to build out the natural gas grids?

Now you know why Obama was incessantly pushing for solar and wind power sources. Now you know why so many people remain unemployed to this day. Now you know why our old light bulbs are going away. Now you know why I keep asking heavily-technologized people what they're going to do when the power goes out. What is business going to do? What is the military going to do? It's enough to make survivalists look sane.

One day soon, electricity is once again only going to be for the rich. Make six figures, you can afford to flip the switch. Don't be surprised if wind-up cars from the pre-Victorian days rear their ugly heads again.

The irony of all this: it back-pedals on environmental gains (not that I care). All this energy back-pedaling (if it takes too long for the electrical grid to get its act together) eventually means we go back to wood fires, coal fires, gas-lit homes, and wood stoves for cooking--all of which produce some sort of shrieking from environmentalists. If we weren't already swimming in oil, we might be going back to whale oil too--wouldn't THAT cause environmentalists to freak out!

Investment tip: plan to go long batteries for the next 5 years. Any kind--it doesn't matter, although household ones should be tops on your list.