Recent newspaper and television reports have focused on skyrocketing energy costs and power outages on the West Coast. To find out how energy issues are affecting MIT, Janet Snover of the Executive Vice President's Office spoke with both Peter Cooper, director of utilities in the Department of Facilities, and John R. Curry, executive vice president.
PETER COOPER
Snover: When did the increased energy costs start to affect the Institute, and in what ways are we being hardest hit?
Cooper: I should start by saying that natural gas is the main fuel MIT uses in our cogeneration plant, which produces both electricity and steam for heating. The price for natural gas began to creep up last summer and fall, and we saw a significant jump during November and December. In January, we've been paying three times more for natural gas than the average price we paid in fiscal year 2000. The price is expected to decline in February and then moderate further as the cold weather passes. So there's a serious financial impact, but no shortages of gas are expected in New England, especially now that a new gas line from Nova Scotia is operational.
It's also important to note that we are required by our environmental permit to burn gas in our cogeneration facility whenever gas is available, so we're somewhat at the mercy of market prices. And the gas company we buy from can cut us off for up to 20 days per year. When our gas is cut off, we burn very low-sulfur diesel oil in the gas turbine generator. Also, we're allowed to burn the much cheaper number 6 fuel oil in our old boilers, and we're doing that as much as possible this winter for producing steam for heat.
In your opinion, what are the primary factors causing natural gas prices to rise so drastically?
Recent mild winters have caused gas production to decline and have masked the underlying load expansion -- new homes, businesses, electric generation -- that have accompanied a strong economy. This winter has been colder nationwide. Boston temperatures are running 10 percent below normal and 15 percent below last winter, as measured in what are called degree days. That greater demand pushed prices higher, even before the typically cold weather began in areas like New England, and each forecast of more severe weather has caused spikes in both the futures and spot markets for gas.
Can you describe why California is experiencing rolling blackouts and skyrocketing electric costs, and why New England has not been affected so dramatically?
There are several reasons. When California deregulated its electric industry, retail rates were capped, but utilities were required to buy all power in the newly created market-based, or spot, power exchange. This financial trap closed on them when a hot, dry summer depleted water reservoirs and limited winter-time hydroelectric power from the Northwest. Since California depends on gas for 50 percent of its power, much more gas was used and its high cost drove electric costs way up. The wholesale price increases caused a financial crisis for the utilities, and the power shortage was exacerbated as suppliers became unwilling to sell to insolvent California utilities.
By comparison, Massachusetts utilities were not precluded from arranging long-term contracts for their retail customer obligations. And regulators have allowed some rate relief to cover fuel costs. In addition, New England is only about 20 percent reliant on gas-fired generation.
What are some ways for MIT community members to help conserve energy?
Everyone at the Institute could help by doing a few simple things like shutting off lights, computers -- at least the monitors -- and other equipment when they leave their space. We could reduce the loss of warm air in lobbies if people would use the revolving doors that are at many entrances.
Probably the biggest loss of heated air comes from laboratory fume hoods because they're essentially pulling heated room air into the hood and out the roof. The continuous air flow is necessary for personal safety, and we certainly don't want anyone to compromise that. However, we have asked that researchers operate fume hoods conscientiously by closing the sashes whenever that's possible, which minimizes air flow without compromising safety.
If community members see a situation that appears to be wasting energy or if they have ideas about conservation, what office should they call?
People can call the energy conservation hotline in Facilities at x3-6266 or send e-mail. Potential freeze-up situations should be called in as emergencies to the FIXIT line, which is x3-4948. A number of suggestions have already come in and are being acted on. Also, if someone is working in a space that's either too warm or too cold, that person should contact their local repair and maintenance zone.
JOHN CURRY
Snover: How much of an impact do you expect the increased energy prices will have on MIT's budget?
Curry: Facilities has projected that at the end of this fiscal year, gas and oil costs will be $7 million more than the $10 million budget line item. Although some of this will be offset by indirect cost recovery, it will still represent a significant opportunity cost. And it means that some worthy budget proposals that might have been funded may now have to be delayed.
Has MIT considered buying futures in natural gas?
We did consider using the futures market as a hedge for our gas purchases. There is a premium to be paid in order to hedge risk, and we have taken the long-term view that it's more efficient for MIT not to purchase hedging instruments for gas.
Given that MIT areas aren't charged directly for the amount of energy they use, what do you see as the incentive for people to want to conserve heat and electricity?
I think members of the MIT community have generally been responsive to environmental initiatives, and I know they value this institution enormously. I would expect that just as people have pitched in and supported our recycling and green purchasing efforts, they also will want to do what they can so that energy isn't wasted. In addition to the fact that we don't want MIT to spend money needlessly on fuel, there also are the much larger implications of responsible stewardship of the environment.
A version of this article appeared in MIT Tech Talk on January 31, 2001.
