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Bigger Is Better

An interstate electricity highway could leverage economies of scale to keep the lights on

Burton A. Weisbrod, Glen E. Weisbrod
Sunday, February 25, 2001
©2001 San Francisco Chronicle

WE COULD HAVE left it to the states. When the Interstate Highway System was proposed nearly 50 years ago, we could have said, "Leave it to each state to decide on its roads and to pay for them, or leave it to private enterprise to build toll roads wherever it is profitable." Fortunately, we didn't.

Today, vehicles can travel throughout the country on a system of integrated high-capacity roads that crisscross the nation. There are many differences between the flow of cars or trucks and the flow of electricity. But just as the Interstate Highway System ushered in a new era of easier movement of people and goods across the states, allowing enormous economic and social gains, so, too, do we now need to overcome the obstacles to the easy flow of power across state lines.

Many forces are at work contributing to California's electricity crises, and power shortages in other parts of the country also are quite possible. The growth of population and industry in California has expanded demand for electricity. Legislative constraints, reflecting environmental protection and other concerns, have discouraged construction of electricity-generating plants.

Periodic shutdowns of generation plants for maintenance have caused short- term power shortages. And, in an oddity of California law, the prices that power producers can charge distributors are deregulated, while the prices that those distributors can charge consumers are regulated and restricted.

But largely missing from the debate of what can be done to balance supply and demand is discussion of an effective national power grid that would permit substantial amounts of electricity to flow, as highway traffic does, from one state to another.

Interstate transmission connections do exist now, but are limited in capacity. They were primarily designed to meet temporary needs associated with local power emergencies, not for sustained use. If those interstate lines were upgraded to greater capacity, then we could move toward actually creating a national power grid.

An effective national power grid could result in far more competition among producers of electric power across the nation, and far more options to meet demand in any local area. No state or region would need to depend simply on a small number of generating producers within its borders, and the increased number of interstate competitors would bring greater assurance of supply and lower prices.

The underlying problem is basically one of incentives. With the maze of state, and federal regulations on the production, distribution and pricing of electricity, there is great risk and little incentive for private construction of costly transmission lines that cross multiple state borders.

Imagine a power plant in state A, but near state B, with that plant occasionally having excess production capacity. There is no market for the power in state B, but there is demand for it in state C, which is adjacent to it. In a smoothly functioning, efficient, power transmission system, power would move from the generating plant in state A, across the border for use in state B, thereby permitting deals so that power produced in that area could be sent to state C. Through such a domino-like process, power available in one region effectively can help alleviate a shortage in another area - with only a series of relatively short-distance transmissions.

Development of such an integrated electricity transmission network is what the federal government can and should foster. It would strengthen the nation; it would expand options for users; it would increase competition among suppliers, to the benefit of consumers; it would overcome the multiplicity of state regulations that have the effect of restricting incentives for profitable interstate power transmission.

The Interstate Highway System did not solve all the problems of the nation's escalating population of cars, and it was not cheap. But, designed to maximize interconnections between metropolitan areas, with ample systemwide capacity to spare, it did transform the country, binding the 48 contiguous states into an integrated whole.

The effect: reduced costs and increased "exports" of California fruits and vegetables to the Midwest, and reduced costs, along with increased exports of Midwest manufactured products to the West.

Just as it does not make sense for every state to act like a separate country, building roads just for its own residents, or growing all of its own food supply, it is equally inefficient for each state to independently develop its own power supply. It is foolish to find electricity producers in one state claiming that they should not "help out" consumers in another state.

A nationwide system would take better advantage of differential electricity demand in various parts of the country, seasonally and even in the course of a day.

To consumers and industrial users in California, the effects of a national electricity transmission grid would be real and enduring, but not spectacular. It would, however, go far to achieving the quiet result that every consumer seeks - lower prices, more reliable electric power supplies.

There is no single solution to California's energy crisis, but developing a national interstate electricity highway system would go far toward addressing it. Local power distribution within a state would remain a matter of state control. The federal government's role would be largely to provide financial incentives for constructing additional interstate transmission capacity, and to establish standards for its design and utilization - just as is the case with the Interstate Highway System.

A survey of history and government professors conducted by the Brookings Institution last year identified the Interstate Highway System as one of the Top Seven governmental achievements of the last 50 years - along with rebuilding Europe after World War II and expanding the right to vote. An interstate electricity highway system could well be among the top achievements of government in the next half-century.


WE HAVE AN ELECTRIC power crisis in California. In fact, we have two problems: a short-term problem and a long-term problem.

Short term, the problem, from the consumer perspective, is:

  • Soaring electricity bills.

  • Fear of paying the mounting debts being incurred by electricity distributors such as Pacific Gas and Electric Co. either in rate increases or higher taxes.

  • The threat, and to some users the reality, of no lights, no refrigeration, no heat.

These concerns are real and severe. But they are merely symptoms of a serious long-term crisis: Incentives to the power industry are wrong!

As Adam Smith reminded us over two centuries ago, we do not look to the good intentions of sellers to get them to serve the public interest; we look to their self interest. Then, as today, wise public policy calls for aligning the two, by providing incentives for the development of an electricity system that provides power that is dependable, is produced efficiently and is distributed competitively, so that prices are low.

This long-term problem will not be solved by the series of Band-Aids that governmental officials and power producers and distributors are skirmishing over. Now is the time to develop a long-term plan.

Two elements of a long-term plan for efficient and reliable electricity are clear:

  • Electricity self-sufficiency for each state is bad policy. It is easy to think that dependency on power imports from other states is a root problem. It is not. Trade and competition mean access to more producers, and that can bring efficiency in electricity no less than in food, electronics or autos, as low-cost sources are utilized. (Promoting more interstate options does not preclude building more local generation, and small, "micro" electricity generating units do have a role as part of an overall electricity policy. However, the advantage of their flexibility must be balanced against their generally higher cost for meeting predictable long-term demand.)

  • Incentives are needed to encourage investment in electricity transmission. It does no good to have low-cost power production unless the power can reach users. This is why the federal government has such an important role to play in financially encouraging and supporting a national interstate power highway system.

--Burton A. Weisbrod and Glen E. Weisbrod

Burton Weisbrod is John Evans Professor of Economics and Fellow, Institute for Policy Research, Northwestern University, and a former senior staff economist on the Council of Economic Advisers to Presidents Kennedy and Johnson. Glen Weisbrod, his son, is president of Economic Development Research Group Inc. in Boston.

©2001 San Francisco Chronicle   Page WB1  

Updated: 2016/06/30

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