Electric belly-flop intuition

The line between a rumor and a scoop can get hazy, so I’ll hedge my bets on this with a big hairy disclaimer, and merely pass on to you that a credible party has told me that the Commonwealth Utilities Corp.’s financial situation is so dire that blackouts may be on the immediate horizon. Disclaimer: I don’t have direct access to the relevant numbers or data, so I can’t verify things one way or the other.

Everyone hopes that the CUC can somehow limp along, but I’ve been eyeing certain…shall we say…er…“anomalies” over there for years now, and I do have a feeling that when the gig ends, it will come with a bang, not a whimper. Don’t blame me, I have been an analyst in the energy industry and so I offered to help out CUC a couple of times in years past, but that’s a very closed and secretive little circuit there, so there’s nothing any of us can do but watch and wait.

The CNMI’s entire economy is only as sound as the CUC is, and this is where things start sliding from interesting to worrying. A lot of clear-headed folks will be calling for privatization of CUC but, take my word for it, that’s not as simple of a solution as it appears at first glance.

Utilities are unique critters, and entire books are written (snore….) about their economic (zzzz….) characteristics. I’ll spare you the litany, but the real world reality is that most folks are willing to accept a bit of inefficiency and even corruption (which is very common in the utility industry worldwide; remember Enron?), just so long as costs are reasonable and the lights come on when you flip the switch. Pointy-headed economists might split hairs over differences of a tenth of a cent per kilowatt hour (I’ve invested entire months on such calculations), but the average household simply doesn’t care.

Why did so many utilities evolve to be such monolithic monopolies? Well, the thinking used to be that utilities are the ultimate examples of economies of scale. It’s cheaper to build one power plant than five, right? Right. So, according to some theories, it’s cheaper for the consumer if there is one power producer, instead of competing producers who ultimately wind up building unnecessary power plants. That’s a totally retarded way to look at things, but, well, there you have it anyway.

And it’s not just the power production that’s at issue. Distribution is a biggie, too. I’ve participated in projects that involved building private electric grids, and that’s one mind-numbingly painful process indeed. That kind of stuff doesn’t succeed by accident; it takes a dedicated team of specialists (in real estate, law, construction, etc.) to handle that kind of gig.

Which brings me to this: If things do hit the fan at CUC, and a privatization crusade is subsequently launched, then just who will own the power grid? The people of the Commonwealth, or some private monopoly? This is a mighty serious issue, and, frankly, I intend to be involved in it if it arises. If the Commonwealth botches that one, it’s goodbye, economy.

In the great wide world, there are excellent government-owned utilities, just as there are excellent private ones, too. In either case, what keeps things clean and efficient is having an oversight process that has some teeth and expertise to it, and that’s what the Commonwealth is really lacking.

In general terms, I’d rather trust a government monopoly than a private one, so I’m not really a knee-jerk privatization guy. Can you imagine, for example, if a private company owned the road in front of your house and could charge you whatever it wanted? What a disaster that would be. There are few, if any, benign private monopolies, but there are many benign government monopolies. But that’s just a general take on things, and the specific case of the CUC situation will depend on the specific data for specific scenarios.

In the meantime, if you’ve been contemplating doing a bit of maintenance on your home or business generator, this might be an opportune time to do it. I can’t assign a probability to the scenario of a CUC belly-flop, though, so you’ll have to place your bets using your best intuition.

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