Ah Carol, you must have given your old uncle fits (I'm sure he loved you dearly). With your experience, I think you're gonna peel me like an onion. Rest assured, very little surprises me anymore. What I'm talking about is the basic way the industry operates.

Begin with my initial premise of economies of scale and then mix in other exogenous variables including legislated societal programs and increasing licensing requirements and the costs do turn around. In a regulated environment, this was the only way to get folks to conserve or to build cleaner power stations. And that was ok.

My company built a coal-fired facity in the mid 1990's with pollution removal efficincies for various criteria pollutants in the 90% or better range. Of the $1.2 Billion spent, $400 Million was for pollution control equipment. Even with that price tag, it was less expensive to generate with that technology than solar, wind or dispersed generation. (By the way, my company also had over 25% of its members' load under direct load reduction programs.)

Fast forward to today, even tougher environmental requirements accompanied by unrealistic expectations for competition and you have a situation where costs now are to the levels where these alternative technologies can compete. The big question is, have we imposed the "right" level of requirements on conventional power sources or have we gotten off the economic curve (this is a question on incremental effects; where do you stop? For example, I can spend $1 million to move my pollution reduction technology from 93% to 94% efficiency. To get from 94% to 95% would cost $100 million more. Am I required to do that or have I met the criteria?)

Additionally, you may have noticed a recent rash of mergers and acquisitions among traditional utilities. This is to achieve the size perceived necessary to compete in a deregulated environment. This is clearly an economies of scale issue.

So, that's why I believe economies of scale still make sense, if one can operate in a common-sensical world. I am aware, however, that that is not the case.

By the way, hold onto your conservation hat. I expect the competitive retail power suppliers to offer discounts to customers who can shed load during peak cost periods.

Ed