Spring 1986 RAIN Page 39 RAIN: As for the first thing, the soaring electric rates, what's causing those? Munson: The primary cause is overbudget power plants. In the 1950s and 1960s the electric utilities thought that they needed a lot of power and that the best way to supply that was through nuclear reactors. They gready underestimated what the costs would be. There is a great deal of debate as to who is to blame for cost overruns that are sometimes as high as fifteen times over the original budget Utility executives like to claim that it's the fault of a bunch of crazy environmentalists and regulators who forced a series of new regulations on them that were all quite cosdy. And there's some truth to that There's no denying that after the Three Mile Island nuclear accident there were a series of new regulations to try to assure that the reactors were as safe as possible. And they did cost money. Forbes Magazine however, in a cover story last year, admitted that they had been wrong in blaming environmentalists and regulators, and said that the real blame for overbudget reactors has to be laid at the feet of utility managers themselves. They called the U.S. nuclear program the largest managerial disaster in U.S. business history. The problem, I think, is that utility managers for so many years have been monopolists. That is, they have been the only ones allowed to generate and distribute electricity. As a result of that, they've had no incentive to innovate, and I think they've had no incentive to keep costs under control. Sure, it hurts when the cost of a nuclear reactor goes five times over what it's supposed to be. But they also can pass the costs on to consumers, so it really doesn't hurt them at the bottom line. Therefore, I think the rise of independent power producers and the rise of competition is a real step in the right direction for consumers and for the electric utility industry itself, because that introduction of competition will provide the accountability that's been lacking over the past several years. RAIN: In the book, you seem to suggest that the utility industry, with few exceptions, has not really learned the lessons that the marketplace is trying to teach them. Is that in fact the case, and what is their attitude toward the electric These independent power producers, who were afew years ago dismissed as a bunch ofbackyard tinkerers, are now a multi-billion dollar industry. entrepreneurs? Are they taken seriously by the utilities? Munson: I think electric utility executives are very schizophrenic about the new entrepreneurs. Most, and I would say upwards in the 90 percent category of utility executives, ignore the phenomenon entirely. I have gone to utility conventions where chief executive officers of major utility companies do not know what cogeneration is. I was blown away. And most have absolutely no conception that we are talking about a multi-billion dollar industry out there that's generating electricity that is not part of the utility monopolies. So first you have this category of people who ignore it. You also have people who recognize that it's a phenomenon and oppose it as stringently as possible. TTiere is however, an interesting, new, small but growing class of utility executives who are beginning to realize that it's in their best interest to do business with independent power producers for the simple reason that the last time utility executives went out to build their own power plants, they got royally burned. Their plants were well over budget, and they were being hassled by regulators and consumers and everybody else. So they say, “Why should I bother risking my money, going to Wall Street and dealing with all the hassles up there, getting all the regulatory permits, when some crazy entrepreneur is willing to take all the risks and all 1 have to do is buy the power from him?” So they are beginning to say, “My goodness, indeed the competitive marketplace has some advantages for me as well.” And it's my hope that other, more recalcitrant utility executives will begin to learn that lesson and open up the market because I do believe that some competition will benefit them as well as benefit consumers. RAIN: So utilities will just stay with distribution, but move away from generation? Munson: My guess is that today's utility companies will probably divest themselves of their generation units, and let them go off as their own business competing against today's entrepreneurs in trying to generate electricity as cheaply as possible. And then the other side of the utility industry, which is a huge side—it's a major business distributing electricity—will probably either remain as a regulated, privately-owned utility company, or indeed in many instances you might see city governments or state governments trying to take over that distribution. Therefore, it might become a publicly-owned or government-owned distribution monopoly. RAIN: How do you view ventures such as the Southern Company's (the holding company of Alabama Power, Mississippi Power, Georgia Power, & Gulf Power) new move into manufacturing photovoltaic cells? Munson: If the utility companies are not using profits from their regulated monopoly side to finance their ventures into new areas, and therefore hurt new businesses that don't have the ability to siphon off some money from their own monopoly ventures, then I have no problem with it. In fact I think the diversification of electric utility companies will be in their best interests and the consumers' best interests in the long run. RAIN: In the book you mention that there are some utility executives who say that they'll never build another power plant. When you combine that with the calculations of Amory Lovins that show that the new efficiency improvements coming on line are cheaper than running existing ones, what is the outlook for new power plants? Munson: I think the age of centralized power plants is over. Probably the most important aspect in today's electricity market is uncertainty, particularly about what the future demand for electicity will be. The projections as to how much power we will need five years from today have never been so I think the age ofcentralized power plants is over.
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