Wednesday, February 17, 2010

Deep Snow and Howling Winds Make Hardening of Electrical Distribution Systems a Priority

The hundreds of thousands of people who lost power in the recent storms leads me to question the cost to benefit analysis that always seem to leave our electrical distribution systems so vulnerable to weather. Power failure is by far the major cause of hardship and suffering by customers in severe weather. Because of this billions are continually spent on emergency restoration of power.

The electric companies work endlessly to restore power. Their literature is filled with advice to homeowners who lose power. But discussions to the public on programs to reduce the magnitude of the emergencies in the first place are rare. Each severe weather event seems to come with a list of thousands to hundreds of thousands of customers who have lost power. The same old story is told of how the electrical companies are working day and night to restore it.

The techniques available for hardening are well known. They include moving especially vulnerable lines underground, strengthening of lines and poles to support additional ice and wind loads, better connectors, and more attention to tree trimming to provide isolation from tree branches.

Electrical distribution systems are complex and expensive. The payback of hardening is in reduced costs to restore damaged systems on an emergency basis and the tremendous benefits to the customers who are spared days of powerless living. After studying a few of the upgrade proposals which are public and online I find that in true capitalist fashion the value of hardening is often understated when subject to cost analysis. It is hard to place a dollar value on the benefits to the customers even though they are substantial. Reduction in emergency repair costs alone does not seem to pay for an extensive upgrade in most cases.

Here as an example of the give and take which occurs is the presentation made by Oklahoma Gas and Electric to the Utility Board asking for a rate increase to pay for their hardening plan. Notice the importance and expense of vegetation management.

Because the number of failed power events is dependent upon both the hardening and the applied stress simple comparisons between utilities are not always appropriate but could serve as a starting point. Statistics on the long term performance of hardened versus standard systems do not appear to readily available.

This is just one of many examples where the needs of the people are not given adequate consideration. There is work to be done and people who want to do the work. Why can’t our system put the two together?

Monday, February 01, 2010

Imported Goods Dull the Effectiveness of the Fiscal Incentive Package

Arguments continue on the effectiveness for job creation of the fiscal incentive package. There is no doubt, however, that it would be much more effective if the US was manufacturing a higher percentage of the goods consumed by Americans.

The job intensive part of the program is lost to the country when the stimulus leads to the purchase of goods manufactured outside of the United States.

To illustrate this effect, suppose first that the incentive package entices the citizen to spend on a product manufactured in the United States. The retailer takes the money to pay operating and fixed costs, pay the wholesaler to restock the item, and make a small profit. The wholesaler accumulates its regional orders for the item and places a factory order. So far only some sales and administrative labor has gone into the economy. It is when the order is received by the manufacturer that the benefit of serious job creation starts. The factory places the replacement order into its production schedule and commits to the plant labor to produce the required number of items. The multiplier effect starts as the manufacturer places orders to its suppliers for the required raw materials and sub assemblies. The economic engine starts up and begins to create some real US labor value add.

In the case where the item is not manufactured domestically the wholesaler or importer places the order to a foreign manufacturer and any further value added goes to another country. Not surprisingly, there are not many jobs created in the United States. The trade deficit grows and the chance for the American worker to add value is missed.

There are some “expert” economists who say that a trade deficit is good and doesn’t significantly affect manufacturing employment. (Some were advisors to Bush!!) To counter this the Enterprise Policy Institute (EPI) in 2004 published a detailed analysis of the contribution of the trade deficit to unemployment in manufacturing. It concluded that in contradiction to those “experts”, the trade deficit was an important contributor toward jobs lost in manufacturing, accounting for 59% of the loss since 1998. The other contributor to unemployment was the productivity increase of the American worker.

EPI examined the percent of US production in relation to the total demand for production goods in the US. It is very telling. In 1991 94.7% of the total product demand for the USA was made domestically. It dropped to 76.5% by 2003. 1991 was a time of almost full employment. They stated that if we could return to our previous position of around 90%, millions of jobs would be created. Another interesting fact is that the US had a trade surplus until 1971.

There are some who say that our service business will make up for our loss in manufacturing. In 2008 we had a service surplus of $144 billion. Our negative manufacturing trade was $840 billion. That is a long way to go and very unlikely.

President Obama has set a target to double the US exports. It will be impossible to do this without the increased value add of manufacturing. If it were done, however, it would result in millions of American jobs and return us to economic strength we once knew before the damaging actions of the past. It will take drastic action to reverse the decades of bad decisions. It must be done.

Our current approach just isn’t working for the American people. China, Germany, Japan and every country with a strong export record is implementing a strategic plan to support their critical manufacturing sectors. These plans address innovation, trade, tax, and educational issues. They are eating both our lunch and dinner in manufacturing while we turn our focus on finance. Where is our integrated plan? It is necessary if we are to compete in a capitalist global economy!!!