NY’s Mini-Blackout Warning

NY’s Mini-Blackout Warning
The city’s physical infrastructure desperately needs renewal.
29 June 2007

Mayor Bloomberg called Wednesday’s brief East Side and Bronx blackout a “minor inconvenience.” And that was just after he had declared that the subways aren’t crowded, even though the chief of the state-run Metropolitan Transportation Authority is pleading that “there’s no room at the inn.”

The subways and the city’s electricity infrastructure actually have much in common. Even if Wednesday’s blackout was just a lightning-strike fluke, it’s a reminder that New York’s physical infrastructure—including its power-distribution and public-transportation systems—remains severely strained. And New York can’t fix things unless the mayor takes the lead.

Gotham’s electricity use is up more than 20 percent over the last ten years. Anyone who rides the crowded subway can see why: the city has lots more people (and way more than it did decades ago, when its now creaky electricity and subway infrastructure was built). Since 1997, in fact, New York developers have built 150,000 new homes, equivalent to a modest new city. That’s 150,000 new households for Con Ed, and outfitted with their cell phones and iPods and flat-screen TVs, they gobble up electricity at levels far higher than did their Clinton-era counterparts.

The addition of so many new customers means that the city needs more power plants. The good news: when it comes to building power plants, competition works. During the Bloomberg years, competitive power-generation companies have built, or begun work on, five new plants to serve New York City—enough to meet about two-thirds of projected demand through the end of the decade (Con Ed is a power transmitter and distributor, not a power generator). Despite permitting and environmental obstacles, these firms build plants because they know that they can make money here.

Of course, that doesn’t mean that such obstacles don’t matter. Governor Spitzer and state legislators need to make it easier for companies to build plants by enacting a new power-plant-siting law to replace the one that expired a few years back. Spitzer’s insistence on more “green” power may not help our generation supply over the long term. At the very least, more green power will mean higher electricity prices. If that’s what New York residents and businesses want, fine, but let’s be frank about it. Still, for now at least, we’re likely not facing a power-generation crisis.

There’s a harder problem to solve, however. Once generators produce the power, they sell it to Con Ed, which transmits and distributes it to customers, like apartments and office buildings. Con Ed, unlike the power-generation companies, doesn’t benefit from competition or real market discipline. Further, there’s no practical way the state and city can create an environment for such competition; the city can only have one power transmitter and distributor, because even if it was a good idea to build a second set of transmission stations and underground wires to every business and home, with customers to fund the massive costs involved, the city doesn’t have the physical space for it. So the state, in particular, closely supervises Con Ed. Indeed, Con Ed behaves more like a quasi-government agency than a competitive private-sector company, though it has elements of both.

Con Ed can’t just raise prices whenever it needs money to invest in its system, for instance; it must apply to the state for a rate hike. Just this week, before the blackout, Con Ed received a tongue-lashing from the City Council for having proposed a nearly 12 percent rate hike last month. Con Ed needs that money to invest in a five-year, $7.5 billion project to expand and upgrade distribution and transmission assets in New York and Westchester, its biggest construction undertaking in 30 years. But Con Ed’s applying for a rate hike is much like the MTA’s moving to enact a fare hike: the process is as much about political pandering as it’s about rational planning and investment.

Nor does Con Ed have any incentive to do an excellent job, beyond (hopefully) investing enough money in its capacity-taxed systems to keep the lights on. If the company is super-efficient and makes profits above a certain amount, it must give those profits back to customers. So just as with the MTA, state and city officials are uncomfortable about supporting Con Ed’s rate-hike request, even when it’s obvious that the company needs to invest. Voters simply don’t like paying more for power, and no one is quite sure that Con Ed will use the money wisely. Con Ed does have shareholders to provide oversight, but they might prove less worried about every last dollar spent if they get the idea that the state is providing an open spigot of cash.

And that’s where Mayor Bloomberg comes in—it’s his job to fix this dysfunctional situation, and soon. Just as Bloomberg should be the person in New York who cares the most that the city’s vital public-transportation system is straining, he should also worry the most about whether New York can keep its lights on. He’s in a good position to be an honest broker between Con Ed and other public officials, making sure that the firm has the money it needs to keep the power on—even if customers don’t like paying more—and pledging to those customers that he’ll do what he can to make sure the money is well spent.

But to do that, Bloomberg needs to focus on getting Gotham’s vital infrastructure up to par now, and five years from now, not in 2030. The first step he could take is to admit, at least, that the subways are overcrowded, and that any blackout in the nation’s biggest city, even a fluky one, is a serious thing, not a minor inconvenience.