Power plays, power barge?

Good grief, have you followed that story? The idea has been floated that a power barge might be the way for Saipan to address some of its power woes. Never mind the details; the Commonwealth Utilities Corp. situation is a longstanding story.

So let’s flog some big picture stuff. Theoretical economic stuff. I used to be an analyst for a wind energy company and I’ve worked on some well-known projects, so I love to pontificate and flap my jaw about this stuff. Oh, lucky me—no, lucky you!

There is a theory that goes like so: A benign monopoly in a utility can be more efficient than a “competitive” situation, since having a monopoly reduces the amount of redundant costs shouldered by competitors. NO, don’t run away yet, I’ll try to explain this better….try this: it’s cheaper to build one network of power-lines (a “grid”) than to build two, right? And it would be really zany if, say, five competing companies built five competing grids.

So far, so good, yet if we want to argue for a monopoly, another issue is: Just who gets to operate the monopoly? This is a major question all over the world. All the choices are bad. A private company would have obvious incentive to gouge everyone (hello, Enron). A government entity, on the other hand, will be inefficient and corrupt. A compromise solution is to have a government agency regulate a private utility, but this now compounds the original problem by adding a layer of big, fat, regulatory bureaucracy that doesn’t produce any power at all. Well, pick your poison.

Government monopolies can, indeed, be the best option. Forget electrons, for a second, and consider roads. Life would grind to a standstill if roads were privatized and every corporate Shylock could take a pound of flesh from your wallet every time you had to drive somewhere. In fact, you couldn’t even have roads to begin with if you didn’t have a government to build them. A private company would simply lack the muscle to decree rights of way. Nobody could negotiate with 10,000 property owners to build a road, the economics of it simply won’t work, and this is a situation commonly proved in economic texts on public finance. There is, then, ample proof, both theoretical and empirical, that government ownership and control of roads makes a lot more sense than private ownership and control of roads. You can apply a lot of this same logic to utilities.

And back on the utility side of things…the CNMI is in trouble. The CUC won’t improve much. On the other hand, “privatizing” CUC may result in consumers getting raked over the coals by a greedy monopoly, and all monopolies are greedy. And, on the other, other hand, having a private monopolist generate electricity under the regulatory oversight of a government agency would just mean that the Commonwealth Utilities Corp. becomes the Commonwealth Utilities Commission (or some such thing), and you’d have the worst of all worlds.

I’ll mention that you could have several competing power generating companies while having a separate entity that owns the grid, a situation that I’ve been involved with in the U.S. Maybe we’ll dig into that topic some day. Maybe not.

Power plants are hugely expensive projects that your children, and their children, will have to pay for, and the whole concept behind that gig is to intelligently spread the costs over a lot of years, the better to serve everyone’s interests. This merely compounds Saipan’s bad situation, since our procurement process is…shall I say “idiosyncratic.” Sorry for the five-dollar word, but all the fifty cent ones are lacking in diplomatic nuance. But I’ll say this: A power plant is so expensive that if Saipan botches the procurement of one, it could sink the entire economy. I mean it. This is one issue that you’d better get really, really sensitive about.

But what about wind or solar power? Stay tuned, I’ll flap my jaws on that in an upcoming column. See? Lucky you.

(Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune. Ed4Saipan@yahoo.com)