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We're Gonna Turn It On! We're Gonna Bring You The Power!
By Ed Driscoll · August 3, 2006 10:04 AM · Bobos In Paradise · Capitalism, the Unknown Ideal · The Future and its Enemies

...Or not. My wife and I spent most of last week without power to our Silicon Valley home--and its home offices. This post by Bill "No, I'm not the former Senator" Bradley over Pajamas' new Politics Central is a might too "green" for my tastes, but it makes a great point:

Weathering what may have been California’s worst ever heat wave, Governor Arnold Schwarzenegger survived the very issue that began his recalled predecessor’s downward spiral. In doing so, the Governor grappled with issues that may afflict the rest of the nation. It was a perfect energy storm. And it may prove not to be uncommon.

Democratic Governor Gray Davis was flying high five years ago when rolling blackouts hit California, kicking him into a tailspin from which he never recovered. Those blackouts, later shown to have been partly manipulated by Enron and other power generators, occurred when electric power demand from the state’s regulated utilities was 41,000 megawatts. This week Schwarzenegger narrowly managed to avert blackouts with the peak power demand at 52,000 megawatts.

However, it fails to mention that for much of the 1980s and '90s, while California business boomed, environmentalism and NIMBY-ism kept electric utilities from keeping up with demand. It makes the Silicon Valley region feel a bit like Blade Runner or Max Headroom: an ultra high-tech computer industry running on an infrastructure that's been little updated in decades. Back in 2001, during the state's last power crisis, Michael W. Lynch of Reason wrote:
Times have been good in California over the past few years; industry has been working at capacity; more people have moved into the state; folks have been buying and air-conditioning larger homes; golf carts have been filling up the state’s fairways. Everything, in short, has been expanding in California since the "deregulation."

Except power plants. It’s extremely difficult to get a permit and a site for a power plant in California. Residents love electricity, but they also love such things as clean air, pristine beaches, unobstructed views, and critters such as the Kangaroo Rat. Since the early 1990s, not a single plant has been built in California. From 1996 to 1999, electricity demand grew by 12 percent while supply grew by less than 2 percent, according to the California Utilities Commission.

In the latest City Journal, Nicole Gelinas writes that a similar situation exists in the other big blue "parenthesis state", as Tom Wolfe once dubbed New York and California:
Over the past 10 years, Con Ed says, electricity demand in Gotham has risen 20 percent. It’s no mystery why: over that time period, New York developers have built 160,000 new homes—equivalent to a Boston-sized city.

While most media attention centers on the need to build new power plants to meet this demand, independent power producers do a reasonable job on this task themselves. During the Bloomberg years, competing power generation companies have quietly built, or begun work on, five new plants to serve New York City, enough to meet about two-thirds of projected demand through the end of the decade.

Why? Because competition works: despite permitting and environmental obstacles that politicians and community activists have thrown up, power generators want to build in New York, since they know they can make money here.

But competition doesn’t work at Con Ed. Since 1990s-era deregulation, Con Ed produces little power itself. Instead, it buys the power from the independent generators and distributes it to New Yorkers. Con Ed, as a monopoly, faces none of the competitive pressures that the independent generators face. So it must operate under close supervision by New York City and State to ensure that it’s doing a good job.

Con Ed, for example, isn’t free to set its own power rates—New York State sets them. And it isn’t free to earn unlimited profits, as most companies can: over a certain threshold, New York demands that some extra profits be returned to ratepayers.

Most important, Con Ed must depend on state officials to allow it to “pass through” to its customers the cost of investments that it makes in its underground transmission network. The company said earlier this year that it would spend $1.2 billion this year, and $5.3 billion over three years, to improve its transmission and distribution networks (some of that money goes to counties outside New York City). But clearly, it wasn’t enough, or fast enough.

Because Con Ed doesn’t face competitive pressures to do what’s best for New York City, it’s the mayor who must ensure that the company does so, or New York’s growth suffers. Due to the Queens blackout, one of the borough’s largest employers, Citigroup, lacked a reliable supply of electricity. Next time, it might be Midtown Manhattan without power for a week. Faced with such a crisis, what would a responsible CEO conclude about his company’s future in Gotham?

He'd probably reach much the same conclusion as Nissan CEO Carlos Ghosn did late last year about his company's future in Los Angeles:
Nissan Motor Co. announced Thursday it is moving its North American headquarters and nearly 1,300 jobs from California to the Nashville area to take advantage of the lower cost of doing business in the Southeast.

"The board of Nissan decided to relocate our North American headquarters, and we're coming to Tennessee," Nissan CEO Carlos Ghosn said at a news conference at the state Capitol attended by Gov. Phil Bredesen and other top state officials.

The headquarters, which has been based in Gardena, Calif., will relocate to Williamson County, a suburban area south of Nashville. . . .

Ghosn cited lower real estate and business taxes as major reasons for the move.

"The costs of doing business in Southern California are much higher than the costs of doing business in Tennessee," he said.

Faced with headlines such as this in today's New York papers, what business owner wouldn't want to decamp towards a more business-friendly environment--which, not coincidentally, is bound to have more reliable utilities?



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