Degenerating situation.

Degenerating situation.

Degenerating situation.

Moneybox
Commentary about business and finance.
Aug. 21 2003 6:54 PM

Degenerating Situation

Why blackouts and gas shortages are very modern inventions.

Illustration by Robert Neubecker

Last week's blackouts plunged a huge swath of the country into darkness. Meanwhile, pipeline problems have caused a gas shortage in Arizona, leaving a region utterly lacking in public transport running on fumes.

Both episodes highlight the frailty, vulnerability, and age of the nation's private energy networks. "We're trying to build a 21st-century electric marketplace on top of a 20th-century electric grid," Ellen Vancko, a spokeswoman for the North American Electric Reliability Council told Wired.

Perhaps. But there is also something very 21st-century (and distinctly not 20th-century) about these problems. For just as 21st-century Americans are content to have their circuit boards produced in Taiwan and sea bass produced in Chile, we excel at importing resources like gas and electricity from long distances within the United States. Relying on essential goods coming from long distances occasionally leaves consumers exposed to problems—as in Arizona, or last year's West Coast port slowdown. But generally speaking, it's best for consumers to have companies produce goods in the places where they can do so most efficiently and inexpensively. And until last week, New Yorkers were perfectly happy to have their energy produced upstate or in Canada, and Arizonans blissfully filled their cars with petroleum refined in California and piped across vast stretches of desert.

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Recent experience suggests that this drive for economic efficiency has limits. What's more, it may have morphed into an equally powerful cultural and economic phenomenon that ultimately mitigates against efficiency. For in many areas of the country, while the illusion of production confers hipness and creates economic value, the actual presence of productive capabilities—especially for energy—is seen as a barrier to development.

In the late 19th century, the great period of urbanization, the production of both energy and goods took place predominantly in cities. Factories and plants were built near rivers and ports, which offered the cheapest and most effective transportation. Every city had its own refineries, breweries, and mills—all fed by local power plants. But over the course of the 20th century, the unpleasant realities of industrial life such as stockyards, tanneries, and chemical plants were progressively banished from urban environments.

Of course, it no longer makes economic sense for every neighborhood or city to have its own power production or oil-refining capabilities or breweries. And for all the lip service paid to the importance of manufacturing jobs, the vanishing of the urban industrial base has been a net positive for many cities. Entire architectural practices have been built around the adaptive reuse of no-longer-useful industrial buildings and complexes. Think Camden Yards in Baltimore, or the site of this former brewery in Portland, Ore., or any of hundreds of fine-boned industrial buildings turned into funky offices, expensive lofts, and giant stores—all of which create far more economic activity than they did in their dying industrial days. There's no better sign of gentrification, higher property values, and urban renewal. In The Corrections, which was remarkably hip to the business zeitgeist,Denise turns an unused power plant into a restaurant—the Generator.

And so in recent years, even the sweetest-smelling factories have been either priced out, or nudged out, of their historic homes. The Necco Factory in Cambridge, near the Massachusetts Institute of Technology, over which the sugary odor of sweet hearts and wafers hovered thickly in the air, closed in 2001. Just this morning, the New York Times reported that the Domino's Sugar refinery in Brooklyn—covering 11.5 acres of prime waterfront space near the hipster enclave Williamsburg—would essentially cease operations.

The possibilities for the Domino's parcel may seem endless, but they won't include a power plant. Indeed, once production capabilities are banished, it is extremely hard to bring them back, except on a small-scale basis—like microbreweries or small solar demonstration projects. Urban waterfronts are no longer for factories and refineries; they're for cafes, condos, and Costco. The New York Observer this week reported that a senior New York City energy adviser quit several weeks before the blackout because of "City Hall's decision to block construction of a huge new power plant on the Brooklyn waterfront." Why? The mayor's office found the notion "incompatible" with existing plans to redevelop the waterfront.

The absence of energy and power production from cities like New York and Tucson wouldn't be such a problem if it were possible or economically feasible to build the necessary transmission means to deliver the out-of-town supplies reliably. But the same dynamics that mitigate against production make creating new and better transmission almost as hard. Introducing new energy transmission—a pipeline or a power line—into a densely populated urban or suburban area is an enormously disruptive and expensive proposition. You can run all the pipelines you want across central Kansas. But just try putting new power lines through Fairfield County, Conn., which is home to a big chunk of the state's population—and its most expensive housing. Connecticut Light and Power, which needs to do just that, is encountering massive resistance. Similar hostility would be engendered by a new refinery or pipeline trying to poke its way through the subdivisions and exurbs of Tucson. In both instances, private investors, or consumers, would essentially bear the high costs.

The sobering shortages of gas in Arizona and electricity in New York have been temporary. And so it's unlikely the widespread opposition to new energy production or transmission capacity will be significantly dented by these short-term inconveniences, costly as they are. It may be a fact of life in the 21st century that the places that most need gas and electricity transmission and production—areas with large and growing populations and with expensive land—are the least likely to get it.