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Re: East Coast outage?
From: odlyzko () dtc umn edu (Andrew Odlyzko)
Date: Sat, 16 Aug 2003 06:22:11 -0500 (CDT)


Let me add yet another $0.02 worth, weighing in on the side
defending the electric power industry.  Let's take a very high
level economic point of view.  Should oodles of money be spent
improving the power generation and transmission grid?  Suppose
that the current system were judged likely to produce blackouts
such as this past week's about once every 10 years.  How much
does that cost the economy?  To be extremely conservative,
suppose that an entire day's production is completely lost.
Well, in a $10 trillion economy with about 250 working days in
a year, that comes to a loss of $40 billion.  But if that happens
just once every 10 years, the annual cost is only $4 billion.
Hence before calling for giant new construction programs, make
sure they will not cost more than $4 billion per year.

In fact, the $4 billion per year figure is a gross overestimate.
Short disruptions such as blackouts appear to have practically
no effect on the measureable output of the economy.  This is
one of those mysteries that economists have not fully explained.
However, it is well tested, since we have had a number of snowstorms
that paralyzed large parts of the country for a day or two, and in 
every case, while there were month-to-month variations, on an annual 
basis the economy simply continued chugging along.  (Hurricanes
that did a lot of property damage, and long-lasting if minor
depressants of economic activity such as SARS tend to do much
more to lower economic output.)  There is a lot of resiliency 
in the economy.  It does have costs (the economic activity that
is lost because of the disruption is made up later, presumably
at a cost in longer working hours, etc.,), but those are hard to
measure.  Hence the true economic cost of suffering a blackout
once every 10 years is probably more like $400 million per year.
That does not buy much generating capacity or transmission lines.

Now we simply will have to build more power plants and transmission 
lines, since electricity demand is rising.  However, this costs
much more money than putting down fiber, and causes much more political 
opposition.  Given these constraints, the electric power industry appears
to be doing an excellent job.

Andrew Odlyzko


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