ON THE GRID OR OFF THE GRID
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 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/02/25/S
C177059.DTL 
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. 
MACRO POWER TRANSMISSION
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. 
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 
,2001 San Francisco Chronicle ? Page?WB1 

Governor Calls for 10% Cut In Usage
On national TV, Davis increases goal on energy 
Tanya Schevitz, Chronicle Staff Writer
Monday,?February 26, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/02/26/M
N44189.DTL 
Signaling a greater urgency in California's power crisis, Gov. Gray Davis 
said yesterday that keeping the lights and air conditioners running this 
summer will require every Californian to reduce electricity usage by about 10 
percent. 
In addition, he said, the state must get more electrical power online by 
then. 
His call for a 10 percent cut is a significant jump from the 7 percent he was 
asking for during his State of the State speech last month, and it may be a 
difficult stretch for consumers. Davis made his remarks on NBC's news show 
"Meet the Press." 
State Sen. Don Perata, D-Oakland, praised the governor's statement on 
national television. 
"The most important thing right now is that the governor said that, because 
there has been general skepticism statewide, reflected both in anecdotes and 
public opinion polls, that we are in fact facing a crisis," Perata said. "If 
you don't believe, you won't conform, you won't respond." 
But, he said, Davis will not get the conservation he wants unless consumers 
are given financial incentives. Perata said he will propose legislation today 
to give $1 billion to customers who cut down on their electricity use during 
the summer months. 
Severin Borenstein, director of the Energy Institute at the University of 
California at Berkeley, said if temperatures soar this summer, it will take a 
"huge effort" to keep the state at safe electricity levels. 
NEED FOR CONSERVATION
"We are in big trouble," Borenstein said. "That doesn't mean we can't avoid 
blackouts -- that means we will have to take serious measures." 
The needed steps include instituting variable prices for commercial and 
industrial users that reflect the supply and demand at any given hour and 
hooking up air conditioners to cycling systems, he said. For residential 
users, 
he said, it will mean increases for use above a certain level. 
Forecasters predict a shortfall of at least 5,000 megawatts this summer, but 
the state got some good news Thursday when the California Independent System 
Operator, which coordinates the flow of electricity through the state's power 
grid, removed all power alerts for the first time in more than a month. 
Lorie O'Donley, a spokeswoman for the California ISO, said that she does not 
expect any changes today but that it is too early to make any predictions 
about the summer power situation. 
"We still need to check the snowpack and the hills and the hydro situation in 
the state," O'Donley said. "Conservation is a big part of it, and whatever 
people can do to step up their conservation efforts will be a huge factor in 
avoiding blackouts." 
GOVERNOR DODGES BLAME
Davis appeared on "Meet the Press" while visiting Washington, D.C., for a 
meeting of the National Governors Association and a concurrent meeting of the 
Democratic Governors Association, which he chairs. With him on the program 
were Sen. John Kerry, D-Mass., Sen. Pete Domenici, R-N.M., and Republican 
Gov. Mike Huckabee of Arkansas. 
Davis took the opportunity of the high-profile television show to tell East 
Coast decisionmakers and Wall Street analysts that the blame for the state's 
energy crisis does not lie with him and to reassure them that he is taking 
solid steps to resolve the problem. 
"Both President Bush and I inherited California, a flawed deregulation 
system," he said during the broadcast. "Secondly, no major plant has been 
built in California prior to my governorship for 12 years." 
He outlined some solutions, including the approval of nine new power plants, 
with six under construction and three expected to be online this summer, and 
14 more in the pipeline. 
In a slip of the tongue, Davis said on yesterday morning's broadcast that 
consumers would need to cut electricity use to only 10 percent of last year. 
"It will require every Californian using about 10 percent of the electricity 
than they did the year before and a little luck in getting some extra 
megawatts on line this summer," Davis said. 
What he meant, a spokesman said, was they had to cut use by 10 percent. 
Still, that will require significant sacrifice. 
In addition, Davis has said that he wants to add 5,000 megawatts of power -- 
enough for 5 million homes -- by summer. He has promised to speed up the 
approval process and provide bonuses to builders who finish before July. 
The state also established an $800 million conservation program this year. 
But Borenstein said that many of the ideas floating around for spending the 
conservation money are for efforts that would not help for about another 
three years. 
ON NATIONAL MATTERS
During yesterday's show, Davis also weighed in on President Bush's tax-cut 
proposal and former President Bill Clinton's controversial last-minute 
pardons. 
The administration should wait for a tax cut until the money is available, he 
said. 
"All of us who have been in government for a while have seen the roller- 
coaster ride of surpluses and then shortages and surpluses and shortages," he 
said. "Clearly, people need tax relief, but it should be moderated to the 
point where we don't kill the golden goose, which is a strong, growing 
economy. " 
Although he received a significant campaign donation from the father of 
Carlos Vignali, the Los Angeles drug kingpin, Davis told show host Tim 
Russert that he never spoke with the family about the presidential pardon 
Vignali received on Clinton's last day in office. 
Davis said he did not have enough information to know whether the pardon was 
a mistake, but, he said, "there's something about them in general that 
doesn't ring right." 
"However," he said, "people expect us to focus on things that matter to them, 
and they really want to see progress on education, the environment, tax 
relief, health care." 
Asked by Russert whether he is going to run for president in 2004, Davis did 
not rule it out but said that only re-election to the governorship in 2002 is 
on his horizon. 
"I'm focused on keeping the lights on and making our schools better," he 
said. 
E-mail Tanya Schevitz at tschevitz@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A1