Q: I’ve been hearing everywhere that our main problem is lack of supply. Do we really need to build more power plants?
A: No. There are enough power plants being built right now. In fact, the plants scheduled to come on line in the next year could provide enough power to run half the homes in the US. The problem is not lack of supply, because nationwide we have more than enough energy production; the problem is how that supply is being distributed.
Q: What do you mean by that? I’ve heard that we need more power lines built, but that’s not what’s causing the California blackouts, right?
A: Building more power lines is only one part of the distribution problem. Approximately 72% of power-generating plants and utilities are privately owned, while about 28-29% are publicly owned. Prior to 1992, when Congress passed an act to privatize electrical utilities, the majority were publicly owned. Once the act was passed, utilities around the nation stopped building new power lines, because it wasn’t clear who would be owning and operating the transmission lines. It didn’t make sense for them to spend the money or go into debt to build more lines when Congress could pass amendments to the act or state governments could pass bills that would require public utilities to sell off their transmission lines to private bidders. At least one of California’s rolling blackouts has been caused by aging transmission lines–there was more than enough power to distribute, but the lines simply couldn’t handle it all.
The other half of the distribution problem is this: private companies have a control over the wholesale power market and have driven prices to astronomical heights. Public utilities that still own power plants or have long-term contracts with power generators are able to provide their customers with cheap power, which is why southern California is not being effected by the blackouts as badly as San Francisco and northern California (whose utilities have to buy all of their power on the wholesale markets).
This is a distribution problem, not a supply problem. There’s plenty of power–more than enough to go around–it’s just that most of it is owned by private companies that want to squeeze as much profit out of it as they can. This is how the free market works, and no one should be surprised.
Q: But won’t the construction of new power plants, which will increase competition as new companies jump into the market, eventually drive the price down?
A: Yes and no. So many new plants will be coming on line this year that commodities investors and analysts are beginning to worry about an oversupply or glut of power. This will, in theory, drive down the cost of wholesale power eventually. But this is only one part of what will happen. Right now companies are going into debt to build new plants; when power prices drop and they can’t make a big enough profit to pay shareholders and pay off their debt, they’ll go bankrupt, and these power plants will go off line again, eventually causing a shortage of power and making prices rise again, and so on and so on. This is often euphemistically referred to as “the business cycle.” It’s how free markets operate in the absence of regulation, and we shouldn’t be surprised.
Q: But the price will eventually go down, right? So the market does work if we give it enough time.
A: No. Even when prices have fallen, we will still be paying higher prices because of hidden costs. For example, in California right now Gov. Gray Davis is paying for power through a huge bond issue. He’s literally charging up the state’s credit card to keep the lights on. This will have two, drastic, long-term effects on California’s finances.
First, it will mean that the state will have less money to pay for running day-to-day state services and less money for schools, roads, cops, and services for the poor, disabled, and children (who tend to suffer most from budget cuts). Why? Because the state will be paying out more money in interest and principal on all that debt.
Secondly, the state has a limit on its borrowing capacity. When a large portion of that capacity is tied up in bonds to pay for electricity, there’s less left over to pay for infrastructure like new schools, road construction, transit, new state-owned power plants, etc. The people of California will be paying too much for electricity for decades in the future, regardless of what happens to wholesale electric prices within the next year.
Finally, there’s a final cost to the public that no one is discussing. Our economy is in a recession and corporate profits are low or, in many cases, in negative territory. As companies deal with higher utility rates, they pass those on to customers where they can. That’s another hidden cost. Furthermore, when companies have to deal with rolling blackouts, they begin to look elsewhere for cheaper, readily available power. For example, many companies will use the blackouts in California as an excuse to desert the state and head for Mexico or points overseas. In Washington and Oregon, power-dependent aluminum plants have already closed down and laid off their workers indefinitely; you can bet their executives are looking overseas for cheaper power supplies … and cheaper labor.
Q: So what about Bush’s new energy plan? Won’t it address the problems in California and the rest of the West?
A: No. There’s not a single point in the Bush plan that addresses the current problems with the wholesale power market. By the way, it’s not fair to call this the “Bush plan,” since it was Dick Cheney’s task force that drew it up, and Bush seems to know nothing about how either the energy market works or how free markets function in general (we know this from his meetings with Alan Greenspan).
The Cheney plan is primarily a blueprint for dismantling environmental regulations in favor of oil and gas companies. It also contains initiatives to revive the nuclear power industry and to allow drilling for oil and gas on all federal lands, including the Arctic National Wildlife Refuge. While these proposals would have to pass through Congress to be enacted into law, remember that the Republicans have already converted a number of “moderate” Democrats to vote for the Bush budget and tax cut plan, the most offensive piece of fiscal legislation in a decade.
We can’t sit back and expect Democrats in Congress to fight these bills; they’ll cave in to wealthy business interests. If we let them. We need to put enough of the right kind of pressure on them to make them afraid to despoil the environment or build new nuclear power plants. Writing letters to your senators won’t do it, giving money to the Sierra Club won’t do it. Only direct action–getting out in the street–can send the message clearly.