Wednesday 1 August 2007

And now we ask for more interventionism...

Last Monday the city of Barcelona suffered from a massive blackout! The impact and the consequences, be they economic and social, for the city are now beginning to be estimated. The Chamber of Commerce of Barcelona has been the first one in offering an estimation. According to them, the economic loss for the approximate 30.000 shops, small firms and businesses affected by the power cut has been of 62 millions of euros, approximately.

After a week, the city seems to have recovered a certain level of normality. However, this situation seems to be very fragile. In certain parts and neighbourhoods of the city, the electricity is available thanks to portable power generators that, like big batteries (see the pic), provide electricity but also more noise and pollution. In addition, the numerous and frequent power cuts remember us that this is not more than a transitory solution.

The fall of a big electricity transportation cable over a distributional plant seems to have been the trigger for the blackout. However, the (political) circus begins when the different political parties start to analyse and determine the reasons as well as the "guilties" for what has happened. It is not an easy thing, as this is supposed to be a publicly supervised sector.

One SOE (state owned enterprise), Red Eléctrica Española is the one in charge of transporting the electricity, whereas a private firm FECSA - ENDESA is the one in charge of distributing and service the power to households and firms. Due to the singularities and characteristics of this market we are in front of a natural monopoly. Because of the perverse incentives associated to a monopoly, this sector is regulated by the National Energy Commission (Comisión Nacional de Energía or CNE). As it states in his web:
"The goals of the Commission are to ensure the existence of effective competition in Spain's energy systems and their objective and transparent functioning for the benefit of all agents operating in those systems and that of consumers"
Well, after almost 10 years of the creation of this regulator body, neither transparency nor the existence of effective competition have been achieved in the sector. FECSA keeps on reporting more benefits from its activities and REE seems to be an untouchable firm. Could have the accident be avoided with more and better infrastructure investments? Was the CNE aware of the fragile situation of the electricity network in Barcelona? Isn't there the appropriate mechanisms to force firms to invest in the network?

It seems that the CNE hasn't done the job properly, and has not forced the two firms involved to spend more of their profits in adequating the network... but who watches the watchdog? Another great issue to be solved in democracies with "perfect markets"!

Addendum: for less in countries like Bolivia presidents were forced off the top job.