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Enron Mail |
CAN NEW YORK AVOID CALIFORNIA'S BLACKOUTS? Monday,April 2,2001 By WILLIAM TUCKER WILL New York be able to avoid a California-type power shortage this summer? Right now, the odds look pretty good. A lot depends right now on whether Mayor Giuliani can keep his mouth shut. Last week, the mayor departed from his Republican principles for a moment to advocate "temporary" price controls on wholesale electricity in the Northeast. "The double-digit price increases that New Yorkers had to pay last summer are just unacceptable," said Giuliani at a press conference. "Deregulation should not be abandoned, it should be completed. The problem is when we deregulated we didn't think it would affect us so quickly. We need a little adjustment right now." Ah yes, just a teeny-weenie little adjustment just to get us through the next few months, right? Just like rent control - a "temporary wartime measure" imposed in 1943. Price controls are never temporary. They just make things worse by producing shortages. And the more shortages they produce, the more people agitate for more regulations. It's a vicious cycle that eventually becomes almost impossible to escape. California is having blackouts right now because, until this week at least, the public and political officials were unwilling to accept a rate increase. (Before last week, Gov. Gray Davis' major power-conservation achievement was having "energy savings tips" printed on McDonald's placemats.) Rate hikes do two essential things: 1) encourage people to conserve and 2) bring in more supply. That's exactly what's needed. Mayor Giuliani's price controls would only anaesthetize the public to the need for conservation and discourage supply - a perfect prescription for California-type blackouts. What's even more important than avoiding rotating blackouts, however, is convincing people that environmental amenities don't come free. If everybody is going to oppose power plants in their neighborhood, then nobody is going to have enough electricity. California got itself into its mess by refusing to build power plants over the last 20 years. The state didn't want nuclear (too dangerous), it didn't want coal (too dirty), so it formulated a make-believe strategy of "conservation and renewables." In fact, the Golden State has done a heroic job in both. California ranks dead last among the 50 states in per-capita electricity consumption. It also gets 12 percent of its energy from renewables (geothermal, windmills, biomass, solar electric) - as opposed to 1 percent for the rest of the country. Yet the state still finds itself woefully short of power. There isn't any substitute for large generating stations. Contrary to public opinion, electricity is not produced by sticking the plug in the wall. New York faces the same long-range problems. The city has not built a new power plant since 1959. Nobody upstate wants power plants either. (They argue it would "reindustrialize the Hudson.") Right now, residents of Rockland County are furiously resisting a clean, new 600-mega- watt power station in an already industrialized area. Yet even building in Rockland won't help New York City, because nobody wants the transmission lines either. The final verdict from the laws of supply-and-demand is simple. If demand goes up and supply doesn't respond, then prices will go up as well. Even mainstream environmental groups now acknowledge this. "We're all in favor of building new gas generators," says Ashok Gupta, senior economist at the Natural Resources Defense Council, which is not opposing the 10 peaking generators proposed for the city. "The new plants are twice as efficient and much cleaner. Every time we build a clean, new gas plant, we back out two dirty older ones." The Sierra Club is also backing new natural-gas power plants in California. What's needed is a system for compensating people who live in the immediate vicinity. There are dozens of possibilities. Property taxes could be lowered, people could be paid cash rewards or given free electricity. Many an upstate town and village lives comfortably with prisons or power plants because they lower property taxes and provide jobs for the community. "We can have both adequate power and a clean environment," says Gupta, who lives and works in Manhattan. "The technology for improvements, both on supply and demand. The only thing lacking is consensus and leadership." It's a small price to pay for avoiding a California debacle. RUDY'S ELECTRIC ERROR Monday,April 2,2001 The energy crisis now building nationally is serious, but it's no cause for panic. Mayor Giuiliani, for one, needs to rethink a key element in his own approach to New York's incipient energy woes. For sure, Hizzoner last week included some common-sense pronouncements in his prescription - such as forcefully telling the environmentalists and "not in my backyard" crowds that more energy-producing plants are essential if New York is to avoid a California-style crisis. However, in one area, Mayor Giuliani is wrong: He wants energy price controls. Yes, energy prices are going to spike in the near term. And it will be tempting to define the results as an "emergency" warranting government intervention. But today's emergency becomes tomorrow's entitlement. "Temporary" actions acquire constituencies that fight tooth and nail to keep them permanently in place. For example, take rent control - please. It was a wartime - World War II - provision instituted in 1943. Two years later, the war ended. Fifty-eight years later, the "emergency" controls remain. And affordable New York City apartments are nearly nonexistent. The rent controls give landlords little incentive to maintain existing buildings. New construction goes only to pricey luxury apartments. Thus it has become nearly impossible for the middle-class to live in Manhattan. If you like what rent control has wrought in the Big Apple's housing market, you'll love what price controls will do for the energy market. Rudolph Giuliani's legacy is assured. It is undeniably a positive one - having, among other things, made the city safe and livable once again. What a pity to tar that by being the mayor who saddled succeeding city leaders with price controls that would cause energy shortages far into the future.
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