My friend and colleague Marty Rosenberg is concerned that the major presidential candidates aren't "leading" on energy.  I take a considerably less sanguine view on politicians "leading."  I take an even less favorable view of the media and advocates "leading"--like Al Gore, former politician now advocate "leading" on so-called global warming.  Politicians "leading" us into a government-controlled managed economy and a government-controlled utility industry is the problem, not the solution.

Free-enterprise capitalism is a "messy" system.  There must be some government intervention to prevent egregious abuse by unbridled egos--the "robber baron" syndrome.  But an economy "managed" by government cannot succeed, long-term: see the collapse of the Soviet Union.  Prior to the 1930s, we had regulation to mitigate the most egregious capitalist abuses.  After the 1930s, we became increasingly a managed economy and the utility industry was essentially nationalized. 

Relatively unbridled capitalism does have the historic example in its favor as an economic system of building the United States from 1776 to 1930.  Modified socialism, which much of the world, including Roosevelt and Congress, adopted in the 1930s, has much less to say for itself.  While our brand of socialism wasn't as harsh or as open as the systems adopted in Europe, it still set about to manage the economy and much of our lives.  The Democrat party in the U.S. became socialist, especially after the 1960s, and the Republicans only slightly less so. They have generally acquiesced in managing the economy and many aspects of our society.  Since the 1960s both parties have moved further and further to the left.

All this history is necessary background (few people read history today and the media knows very little about it) to clarify what I see as a series of impending "reality checks" for the United States.  And, free enterprise--even adopted to a lesser extent in China out of desperation--is what built the worldwide economy, even as "bridled" since the 1930s.  If our "managed" economy collapses, so will those in a lot of the rest of the world.

The problems are:

1.  Fossil fuel always has been a finite resource and we have passed the peak of its general availability.  There still is much out there to be recovered, but at increasingly higher prices.  Additional restraints on that recovery (especially drilling and exploration in and around the U.S.) is exacerbating and accelerating the problem.  There is no doubt that we need to find alternative ways of generating electricity.  See, I'm not opposed to renewables, even advanced ones for the future.

2.  Government and the media have gradually convinced the public that "green" is "good."  But they have not prepared the public for the costs involved.  The technology--other than nuclear power--for "going green" in the United States is nowhere near adequate to make a large-scale conversion to "green" in the next 10 years.  I won't get into the details, but rest assured, renewables will not make up the 50% of U.S. generation that coal now provides in the next 10 years.  It won’t even get close, barring development of a “magic cube” unforeseen by anyone at this point.

3. Based on computer modeling and very little historic data—a very "iffy" proposition as any honest computer expert will tell you—environmentalists, Al Gore, and the media have adopted global warming as a casus belli.  If they succeed in shutting down fossil fuel before its natural time has come—and dozens of fossil plants already have been cancelled, including the so-called “New Gen” effort (see postscript below)—an impending shortfall of generation is going to be sharply accelerated.  The NERC long-range forecasts show a serious shortage of generation eight to 10 years out, and that forecast does not factor in a continuing global warming-inspired shutdown of coal plant construction in the U.S.

4. Regulators have "managed" us to a point where transmission and distribution grids are aged and increasingly inadequate.  Building new transmission runs into the same environmental-political-judiciarl cabal that has brought us to this point. 

5. The Energy Bill of 2007 does not address the underlying problems, instead insisting that the industry spend large sums of money gearing up for demand response, which is a "politically correct" way of saying reduced consumption, or the rationing of electricity.

The impending reality checks are these:

1.       Politicians and bureaucrats have “managed” us into a box.  They have controlled utilities, dictating their approaches to everything and not allowed free-enterprise to work.  They have no choice but to bend with the latest winds blowing from Washington and regulators in 50 state capitols.  They need far more money than they have to solve all these problems.  My friend Marty estimates it would cost more than the current market value of all utilities combined to build everything that needs to be built in the next 30 years--something that just won't happen.

2.       Our economy is in serious, fundamental trouble.  It has been “managed” to the point where 50% of all real income goes to government and 60% of government’s income at the federal level, and similar percentages at the state level, now is locked into socialist “entitlement” programs.  The public, through Congress as led by socialist-leaning presidents, has voted itself the “bread” of the “bread and circuses” bane of democracy as seen and understood by the Greeks and Romans more than 2000 years ago. Such a system cannot long endure and will collapse of its own dead weight—see the Soviet Union.

3.       The public is busy watching the “circuses” that fill the airways and substitute for “culture” in this country.  Politicians pander to this circus, offering 30-second sound bites and slogans as a substitute for meaningful, in-depth discussion of fundamental issues.  Elections are couched as “horse races” thrown into the circus periodically by the media.  The vast majority of the public has very little knowledge of, or interest in, the impending crises nor that these crises have historic roots.  They aren't going to like rationing, especially of electricity, which they consider an essential supply for which they pay regularly.  They likely will tolerate higher costs for awhile.  They aren't likely to tolerate rationing very well.

4.       Time is running out.  The lights will begin to dim eight to 10 years from now.  Prices will continue to skyrocket.  They doubled during the four years of arch-socialist Jimmy Carter’s term of office (people don’t remember that), and have continued to accelerate at varying rates since.  In 1776, $1 would buy you many acres of land and $100 would build you an extremely nice house, with lots of land around it.  Today $1 hardly buys a cup of coffee and $100 won’t pay most people’s electric bills.

5.       When the public awakens to what has been done to them, they are going to be very upset.  According to the Greek model such a period generally leads to revolution and dictatorship.  Of course historic models are never accurate (any more so than computer models) and history does not repeat itself, though it does seem to tend to go in cycles.  One thing is certain, we have learned very little from it and most people don’t know anything about it.  Regardless of the direction public anger takes, or what demagogues arise to take advantage of it, fundamental changes are inevitable.

It’s going to be an interesting 10-to-20 years.  Of this I am certain.  The current situation cannot be maintained.  We are on a precipice nearing the end of an historic cycle.  The only question is which way we will fall and how hard we will land.

Postscript:  After this blog was written, Wood McKenzie Research, which tracks power plant construction, issued a report stating: "The rate of coal plant cancellations accelerated during 2007 to the point that over 50% of coal capacity announced since 2000 have now been cancelled (see Chart 1: US Coal Project Announcements and Cancellations). This is likely to continue due to the 2007 US Supreme Court ruling that CO2 is a pollutant and must be regulated by the EPA, rising construction costs, and the uncertainty in CO abatement costs embedded in climate change legislation currently being drafted.  There are few options to replace the cancelled coal capacity that was anticipated to come on line between 2012 and 2017."