Suman Palit has some cogent thoughts about what we need to do to ensure that we don’t face another major blackout.
Palit points to an MIT Energy Lab study that points out that one of the biggest problems facing the power transmission industry is a regulatory framework that makes upgrading the national power net virtually impossible. Palit also has this exceptionally astute commentary:
So what would make our energy grid more reliable, less temperamental? No doubt the next few months will see some sort of public debate, ideas will flail and be flayed. We shall see what happens.. Some ideas: Redundancies in key nodes of the network, additional plant capacity, re-opening the nuclear power debate, decentralizing the network using local energy co-ops, helping people get off the grid where it makes economic sense for them to do so, are just some of the options. Taking a hard look at NIMBY-syndrome environmental laws that usually torpedo energy generation plans is another. Allowing the real cost of power to influence usage and conservation would correct a glaring deficiency in the muddled regulatory environment energy utilities operate under.. stop subsidizing power usage, and people will adjust their consumption accordingly. Energy is equivalent to currency in an industrialized nation like the US, it should be traded like one.
This shows why the idea that key industries should not be subject to government protection. Key services like energy and water are important – which is why it is that much more important that their price meets their actual cost.
One of the major problems with subsidized utilities is that the price does not reflect the actual cost of production. When things are cheap, people use more. When prices go up, people conserve. That’s why the idea that government subsidies would increase efficiency is so completely wrong – if prices are kept artificially low the cost of a service no longer meets the actual cost of keeping that service running. Then you get people using more of a service as that service can’t afford to keep things running in good order, and you get the kind of massive breakdowns we saw in California.
(WARNING: In the next few paragraphs, I will be praising the French. Yes, I will be praising the French. That is not a typo…)
The Economist recently ran one of their excellent global surveys, this time on the worldwide problems with water. Only 1% of the world’s water is in a human-drinkable form. Yet this 1% should be more than enough to meet all the worlds needs. The problem is that some places, like Seattle or Scotland, have more of it than they know what to do with. Other places like Saharan Africa don’t have any.
They point out that the best way to increase conservation is to allow the price of a commodity to be at least the price it costs to produce that commodity. (Which really should be a no-brainer, except to those who appear not to have brains.) Even the French, where capitalism might as well be a four-letter world have a system of water distribution that is – gasp! – largely privatized. In fact, it has been so since the reign of Napoleon III in 1852.
The two biggest suppliers of water in the world are French – Veolia and Suez. Both have been in business (orginally as Générale des Eaux and Lyonnaise des Eaux respectively) since that original charter in the 1850s. Because of France’s private/public partnership in their water system (ownership of the assets is municipal while management is done through private corporations) they have been able to offer better service than even many American water systems at a very affordable price. In fact, France’s water system is one of the few reliable services in the whole country.
Another example of this process working is Latin America. In the late 1990s Aguas Argentinas and Suez worked to create a system to distribute water throughout the poorer sections of Buenos Aires. Until the Argentine devaluation crisis of 2002 the system provided potable drinking water to 3 million improverished Argentines at a price 10 times less than before. Unfortunately, the government tried to prevent Aguas Argentinas from adjusting the price to match the devaluation and the deal collapsed.
The fact remains that the best way to encourage conservation and create a more reliable and less costly supply of any commodity, be it electricity, water, or fuel, it is best to allow it to become a commodity, subject to the rules of the market. Markets are designed to maintain equilibrium – if costs rise, demand decreases, if costs go down, demand increases. If the government steps in and runs things, that cycle spirals out of control as the government tries to arbitrarily keep prices low as demand skyrockets.
The best way to allow for flexibility and growth is not to apply the static hand of government, but to (as much as it pains me to say it) follow the example of one of the few things the French do right and allow the market to maintain a sustainable equilibrium between supply and demand.
