Can Deregulation Carry the Political Current?

Posted: Aug 24, 2003 12:00 AM

If we want electrical power, we'd better let people provide it.

So far, it looks like the professionals haven't yet figured out exactly which renegade electron sparked the cascade of power outages that darkened eight states and part of Canada, though it looks like the problem may have started in Ohio.

Of course, we must look at the forest here, not just the trees or electrons. Everybody agrees that the power grid is getting rusty even as demand for power grows. Everybody agrees we need an upgrade.

Problem is, though, we need a political upgrade too. We need deregulation.

I know, I know. We already "have" deregulation in the power market. That's what "caused" the problem in the first place. All this power freely flowing around the country for the past several years as a result of the deregulated market has been putting an unusual strain on the transmission lines.

But the kind of deregulation that's been taking place is akin to removing a man's handcuffs but keeping him in leg irons, then telling him to go forth and do gymnastics. Sure, he can move around more easily than before, but he's going to trip over a monkey bar eventually.

The other minor problem with the thesis that "deregulation" is the "cause" of the recent blackout is that in 1965 and 1977, when previous sweeping blackouts occurred, Mr. Deregulation was nowhere to be seen. Well, they never caught the Zodiac killer either.

The power grid with all its power plants and transmission lines may be very complex and very interconnected. But this is no reason to favor centrally-planned regulation and subsidies of the power grid. A great many products and services in a modern economy involve very complex chains of production and distribution. The proponents of regulation and central government planning look at such sprawl and see chaos--and say it must be tamped down, hemmed in, "coordinated." The proponents of markets see that, thanks to the information and incentives conveyed by prices and profits, the desired coordination is already happening--and say we better let it keep happening.

The problem is not deregulation but partial, inadequate deregulation. As policy analysts Jerry Taylor and Peter VanDoren have observed, the deregulation over the last decade "occurred exclusively in the generation and retail sales sector of the business, not in the transmission and distribution end of the business." Which means that power production is still being distorted by command-and-control regulations. Indeed, not only has "the transmission and distribution system...not been deregulated--in fact, regulation of this sector has increased throughout the 1990s."

In 1998, VanDoren published a study ( of electricity deregulation in which he suggests that it is foolhardy to "take apart vertically integrated utilities" when that would mean reducing the incentives and ability of power makers to maintain the transmission lines that they use to send the power around. Instead, VanDoren proposes "simple deregulation, the elimination of state-granted franchise monopolies." "Simple deregulation" would preserve structures of power production and transmission that make economic sense, while allowing those that don't to wither away as a result of competition.

If deregulation were "simple"--and total--companies would be able to accommodate strains on power systems through variable pricing. There would be no commission telling companies exactly what they could charge to whom and how and when. When demand gets tough for a utility to deal with, a little cost gauge near your thermometer could tell you that the cost of electricity for that day is increasing by 20 percent--or by 30 percent or 40 percent if your usage goes above a certain level. Demand would decline, and the people who need power most would be able to get it without interruption.

If deregulation were "simple"--and total--we wouldn't still have to deal with just one local, monopoly utility company, as many of us do. We'd be able to switch to a company that says, "You know, even if there's some kind of eight-state-wide blackout, we here at PowerForeverCo have autonomous and redundant generation and distribution systems and we'll keep your house lighted anyway. In the event of such a catastrophe, the maximum amount of service interruption you can expect is two and a half minutes. Sign up now."

Being free means being able to pick from a wider array of existing methods to solve problems. It also means you have a chance to come up with brand-new creative solutions using the latest advances in other fields as well as your own. But it's a lot harder to come up with creative solutions when you've got to go running to regulators or legislators for permission for everything you do.

To some, freedom is a scary thought. But which is better: living with periodic disabling blackouts and the threat of same...or just letting people do their jobs?