advice from a fake consultant

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Wednesday, July 7, 2010

On The Smartest Investment Ever, Or, Wanna Restart The Economy?

It’s been a while since we had to have a real heart-to-heart, the Obama Administration and I, and last time it was because Rahm Emanuel had been a bit snippy toward those of us who are carrying the water for this Administration.

We need to have another one of those conversations today; this time the circumstances are a lot more positive—in fact, if the Administration follows my suggestions here, we have a real chance to put the Democrats on the road to victory, not just this November, but also in 2012.

What I’m proposing will create hundreds of thousands, if not millions of jobs, and it will stimulate millions more as we create a national source of discount electrical power that can be used by business and consumers alike.

Here’s the best part: it’s no “pie in the sky” promotion I’m offering here; we’ve already done the same thing before, it’s been working out well for almost three quarters of a century...and even better than all idea first pays for itself, and actually makes the Federal Government a profit, forever after.

Lewis Black will offer today’s opening statement; he’s a bit blunt, so if you, like Mr. Krabs’ Mom, get all distressed when exposed to “sailor talk”, just move right on past his commentary and the rest of us will be with you in just about 30 seconds:

So Lewis is right: we need to build a big thing. Where he and I disagree is that I think the big thing could be distributed all across the country, and I think the big thing should make a profit for the taxpayers who will be making the upfront investment.

So how do you do that?

Franklin Roosevelt delivered a speech in Portland during the 1932 presidential campaign. He promised that the next great federal hydroelectric project would be built on the Columbia River to prevent extortion against the public by the giant electric utility holding companies then dominant in the region.

That speech marks the first day of the history of the Bonneville Power Administration (BPA). Over the many years since, a string of dams were built along the Columbia River; these are operated by the Army Corps of Engineers, and the hydroelectric power they produce is marketed and distributed by the BPA to both public and private utilities.

Since the BPA is selling about 45% of the region’s power for a price not much above the actual cost of production, this “public option” keeps electricity prices in Oregon, Idaho, Montana, and Washington to more or less 50% of the cost of power in California, DC, New Jersey, or every single State on or near the East Coast, from the Delmarva Peninsula north. (The one exception is Pennsylvania: Northwest states pay about 1/3 less than customers in the Keystone State.)

Now what I’m proposing is to duplicate the BPA model, nationwide, with power generation assets owned by Federal agencies sited on Federal land selling that power, cheaply, but at a profit, to consumers.

If my math is correct, we spent about $465,584,000,000 on electricity in 2007 in the US (4,157 million megawatthours [MWh] times the national average of 11.2 cents per kilowatthour [kWh]); if that could be cut by 1/3, that’s $150 billion annually that could be eventually recovered by the larger economy.

(Fun Fact: Did you know that Sharron Angle has threatened legal action because she believes that if Harry Reid reposts her actual, but now deleted, Nevada Senate primary campaign website, word for word, it will hurt her chances of being elected...or that she believes that doing such a thing is a “dirty trick”? It’s all...absolutely true.)

So here’s what we do:

There’s an enormous amount of Federal land in Nevada, to give just one example, which could be “inhabited” with either windmills or solar generation assets. At this point you need some more “transmission and distribution” assets to get that power to say, Phoenix, or Las Vegas, or California, which the new entity that we create to market this new power will own.

We could also own “distributed” assets (for example, solar panels on major building rooftops), which requires investment in “smart grid”.

The same opportunities exist along the East Coast.

As we bring more of this power online, we can reduce the amount of coal generation we use on any given day, which is going to help reduce costs, both in cash and in the environment.

Now the big risk with wind and solar is that you may not have “near 100% uptime”; the solution is to hold coal and natural gas assets that you’ve taken offline in reserve; natural gas can be fired up quickly if needed, the rest of the time, you’re getting greener.

How much would such a plan cost?

That depends. The lowest costs appear to be achieved by reducing the cost of financing, finding sites with higher average wind speeds, and increasing the size of the generator—and this is especially true with windmills: the taller the tower and the longer the blades, the more power you’ll get, and the increase is more logarithmic than linear.

It’s reported that the cost of connecting to a grid owned by another utility also affects the cost of power; some utilities seem to be discouraging wind generators by imposing various conditions when they want to connect. The distance from the generators to that larger grid also impacts the cost of the power produced.

(“Distributed” assets, such as rooftop solar panels or windmills, may cost more up front and are less efficient, but there is a considerable savings in not having to build power lines to a distant power plant.)

The cost of capital and the cost of access to the grid aren't big problems for the Federal Government, and that means you could put up a wind plant that produces 150 million KWh annually for about $65 million. If you sold that power for 4 cents per KWh, you’d make about $6 million a year, and about 90% of that would go to debt and the cost of operations.

Such a plant would be paid off in 15 years, and from then on, about 60% of your $6 million in annual profit.

Now if you applied that same math to the goal of replacing about 10% of US power generation, you’re looking at about $520,000,000,000 plus the cost of new grid. Let’s add 50% for that cost.

The eventual outcome: if we did it all at once, we’d have it all paid off 22 ½ years after construction is finished...or sooner—and after that, we’d be making a profit of just over $300 billion a year...which, if we did nothing else, would pay off our entire current debt in about another 40 years.

And that’s what I’m proposing, Mr. Obama: I want you to stand up in front of this country and tell us we’re going to do this, that we’re going to concentrate on the areas with the highest costs first, and that paying off our investment is easy and makes us a stronger economy in the bargain.

That this is your “man on the moon in 10 years” moment.

We give preference to US-sourced production, and we lend money to seed that production. We can create all kinds of jobs in the process, both in the manufacture of the generation assets, and in their installation.

If that’s not enough, lowering the cost of power in New England from today’s average of 16.8 cents per kWh by 30% or more is absolutely going to help bring jobs back into the region—particularly in the manufacturing, tech, and communications industries, each of which consume lots of power.

The same in California—and the same in the Upper Midwest, where reducing the cost of power will also help to create badly needed jobs.

So whaddaya think, Mr. President?

You need a damn good idea, especially one that creates lots of American jobs—and this one does that...and it does it by lowering the cost of power, making our environment a better place in which to live...and if all that wasn’t enough, we’re making a profit doing it, so we can pay down the national debt at the same time.

So get out and sell this sucker—and when our Republican friends rise up against this new “socialism”, ask ‘em why they’re against jobs, and lower power bills, and why they don’t want the Federal Government paying off its debts...and then just sit back and enjoy Michael Steele’s and John Boehner’s and Mitch McConnell’s efforts to respond.

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