Oh, What a Mess
Power and first principles.

June 1, 2001 3:00 p.m.

he monsoon of data and analysis and ululation over the energy problem has the effect of obscuring first principles. First principles, to be sure, don't always work. They are largely ignored in wartime, for instance. But since we are not at war, we tend to magnify lesser problems, and to appropriate military rhetoric in discussing them, as of course the wars on poverty, drugs, racism, etc. If we were at war, we would reorder our priorities and subordinate our complaints. Gratefully we aren't at war, but this shouldn't mean that we have license to neglect priorities that are built into the market systems.

Here is a recitation of evolving considerations:

Power, except in Arctic circumstances and surgical operating rooms, is not indispensable to life, in the sense that food and water are indispensable. But it is on the order of a necessity. That is the reason why it worked its way, in social-economic history, to qualify for state superintendence.

Power has been thought of, and dealt with beginning about 100 years ago, as a commodity produced by monopolies. The political reaction to monopolies came in two parts. The first was to break them up, as was done to such as Standard Oil. Where this was not feasible, regulation was invoked. Social life could not tolerate a water distributor to charge what it liked for water, let alone to estop its delivery. The principle of a "utility" arose, and the sale of power was, accordingly, regulated.

But the sources of power proliferated. The generation of electricity is done by myriad, though not countless, forces. Hydroelectric dams generate electricity. So do coal, oil, and gas. So does nuclear power. In the next wave of social adjustment to energy consumption the tendency was to order monopoly power distributors to break up, intending competitive offspring. Con Ed in New York, as an example, was told to sell off its power-generating plants, and restrict itself to distributing power. In California, as we are up-to-our- keister informed, legislative fine-tuners approached the problem by attempting to square a circle: Companies that generated power could buy and sell as they liked, but consumer prices could not be affected. What happened was bankruptcy.

Came, then, the question of environment. Many years ago, economists thought through the social cost of an automobile. The consumer in the 1920s thought the whole thing wrapped up when he paid $l,000 to the automobile dealer. But derivative economic questions of course arose. What is the use of an automobile if there are no roads to drive on? And what are the responsibilities of the automobile driver when he runs over somebody? The auto gave rise to the construction of highways and the proliferation of insurance companies. Similarly, the expenditure of energy, whether to generate heat or cold or computer life, let alone travel in automobiles, threatened, and indeed caused, such malevolences as Los Angeles smog and whatever it is that is happening, or is threatened to happen, to the ozone layer that regulates planetary heat.

The concern for the environment became, in the hands of enthusiasts, something of a theological movement, i.e., worshiped, as in the religious wars, without sufficient thought given to contextual frames of reference. Vice President Cheney regrets that "the government has not granted a single new nuclear power permit in more than twenty years." One reason for this is that no utility company has submitted such an application for 20 years. In California, notwithstanding the predictable rise in energy needs, no new power plants were built.

The attempt simultaneously to close in on multiple fronts of concern has resulted in political/economic hybrids and miscalculations as in New York, where electrical costs are up almost 40 percent for reasons including, but not limited to, market manipulation.

Politics can't be pulled away, leaving us with crystalline adjustments governed by supply and demand in the conventional sense. The reason for it is that supply is substantially decided by the vote of a few foreign producers, notably Arab states, Nigeria, Venezuela, and Mexico. And supply is reasonably affected by factors extrinsic to reserves of oil, gas, coal, and nuclear plants.

But guiding stars are there to help us penetrate the fog. Most relevant is this, that high energy prices are going to result in greater supplies — in the long run. Meanwhile there is no alternative to submitting to them either by paying the extra costs, or diminishing consumption. At current production rates, 90,000 megawatts of new electricity are scheduled to come in by 2002, twice that by 2004.

Moral. Interfere with the market only as thoughtfully required for corollary satisfactions, but always remember the abiding satisfactions of energy consumption.