A Tale of Two Calamities

Are you going to let BP survive while the gulf dies?

Last week, the Tennessee Department of Environment and Conservation issued its largest civil penalty ever—$11.5 million against TVA for the December 2008 ash spill at the Kingston Fossil Plant. TVA is already spending two orders of magnitude more money cleaning up the spill and reconfiguring ash storage sites throughout its domain, so the fine has more to do with TDEC saving face as a protector of water and soil than with punishing TVA.

If the TVA managers and executives who persistently postponed finding a permanent, off-site storage solution for the plant’s ash feel any remorse for their decisions, their guilt comes not from environmental fines, but in proportion to hourly rates of men and machines scooping up and hauling away the debris. TVA executives got yearly bonuses as the risk grew, and they will not be asked to pay them back, so remorse is largely a matter of conscience, meted out in the privacy of their minds.

Out here in public, we all get to pay for their short-term thinking. You cannot switch to a competing electricity provider. If you wanted to protest their bad gamble, your only option was generating your own electricity, but TVA suspended their Generation Partners program last week because it was becoming too popular. The TVA Board can reinstate the program, but they do not meet until August. Meanwhile, the region’s rapidly growing solar economy sits in limbo, even as the federal government has placed alternative energy at the forefront of economic recovery, because some bureaucrat saw numbers encroaching on an arbitrary limit.

That is the sort of economic power that makes Americans skeptical of socialism. Our Constitution does not dictate any particular economic philosophy, but its emphasis on a limited, decentralized government, individual liberty and equality for all point to free markets as the preferred ideal. There are good reasons why flood control and transmission lines should be collective, government-run enterprises, but power generation ought to be private and competitive.

As the uncontrolled plumes of oil fouling the Gulf of Mexico prove, private enterprise does not preclude economic sectors being held hostage by poor management decisions. Because BP operates in a competitive industry, however, you have an opportunity that TVA does not allow. You can take your business elsewhere. BP shareholders have already begun the exodus, with daily trading volumes tripling as share values halved since the Deepwater Horizon sank.

The company cut corners in both design and operation that contributed to the explosion that killed 11 and destroyed Transocean’s $2 billion drilling platform. BP put $20 billion in escrow to pay for claims that arise as their spill impacts fishing and tourism all along the coast, but is that enough?

BP could not find $500,000 in its budget for a remote cutoff switch, though it was drilling deeper beneath the seafloor than had ever been attempted. It did spend $16 million last year lobbying Congress. Politicians constantly remind us what happens when government increases an industry’s regulatory burden: Costs are passed along to consumers. BP will have trouble doing that, because none of their competitors have to do the same.

The spill and the resulting moratorium on drilling represent a plain constriction in supply, yet the price of a barrel of oil dropped about 20 percent in the weeks after the catastrophe. Normally, oil prices climb as Memorial Day and vacation season approaches. Instead, the law of supply and demand seems to have gone on vacation. Perhaps oil markets are not as free as we’re led to believe, and we need to assert ourselves as consumers to restore market freedom. Bad companies should be free to fail.

The gasoline distribution system makes a boycott of the BP brand imperfect but not ineffective. Owners of gas stations sell gas at cost and make their profit from drinks, snacks and cigarettes. If you want to punish BP but not their local franchisees, stay away from the pumps when you buy candy and beer. If we don’t exercise our market freedom here and now, we’ll be socializing corporate gambles until there is nothing left to risk.

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