Thursday, March 05, 2009


Public Utilities and the Problem of Scale

A largely overlooked problem faced by industrialized countries is how we will keep public utilities running as the economy continues to deteriorate. Gas, electricity, and water services require a lot of money to keep running. Some of the money is debt — which should be of even more desperate concern now — but utilities are largely dependent on user fees to keep running. And since utilities are large-scale institutions, they need to maintain a healthy flow of user fees.

Take electricity, for example. People who don’t pay their electric bills for a long time typically get cut off. Naturally, generating plants can’t provide much power for free. So what happens when too many people just can’t pay their electric bills any more? There will be a tipping point at which the plant can no longer run profitably. A coal-fired power plant, for instance, has to keep buying trainloads of coal, dispose of ash, pay its workers, keep the plant maintained, have a cash reserve, and make financial provisions for new equipment.

Naturally, depending on the type of utility, its size, local economic conditions, and other factors, the tipping point will differ widely, but since utilities can’t run without money, a tipping point has to come at some time. If a second Great Depression does materialize — as seems more likely with each passing day — it is easy to imagine that many utilities will go bust and fail to provide their services. I myself lack the expertise to perform such calculations, but it would be instructive (and certainly scary) to see what an expert has to say.

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