CAPITAL IDEAS: California Following Dangerous Energy Path
On a sweltering June day, the California Independent System Operator
(CalISO), the group that oversees the state’s electricity grid, issued the first
“flex alert” of the year. That same week, a major California utility announced
it had reached an agreement with the environmental community
to close down a large nuclear power plant in the state. It was an ominous
combination for California’s future.
A flex alert is a warning that certain areas need to conserve energy or face
blackouts, which are normally the province of third-world countries rather
than wealthy states such as California.
Blackouts, forewarned or not, leave businesses idled, unable to serve customers,
make widgets, or do whatever else they are doing to create wealth.
For a state like California, with an already miserable business climate, an
unreliable power grid is a 20-penny nail pounded into its economic coffin.
Now, imagine the state’s energy system as a business. Think of a flex alert
as a bankruptcy warning, telling everyone that the day’s liabilities (energy
demand) might exceed the day’s assets (energy supply). Then imagine that
business announcing revenues were going down nine-percent, but they
would make up the loss by employing less reliable, more expensive equipment.
That stock would tank!