Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Electricity Restructuring is No License for Central Planning

RTOs will perpetuate regional monopolies and political rate regulation.

Fortnightly Magazine - June 1 2002

Commission becomes the manager of the national electricity grid. This makes no sense.

Central planning faces the age-old "agency" problem: no residual claimants, disparate interests, and no incentive to innovate. The proposed Regional Transmission Organizations effectively would perpetuate the current regional monopolies and the current system of political rate regulation. Regulatory rates are unlikely to encourage the kind of entrepreneurial thinking and investments that give us a chance to have a smart electricity grid. FERC will lock us into an inadequate electrical system forever.

Meddling With Networks: A Common Malady Today

Unfortunately, intervention to manage networks is part of a trend. Nearly every networked industry-telecommunications, railroads, cable TV, the Visa and MasterCard networks, and even America Online's Instant Messaging service-has been confronted by policymakers demanding the same wrongheaded "open access" concessions. Regulators mistakenly assume themselves indispensable to competitive markets, clinging to the illusion that capitalism generates harmful natural monopolies and that companies must therefore be "forced" to compete rather than simply allowed to.

The problem with mandatory open access for electricity - as well as the open access schemes - is their coercive character. The desire of any company to control its system or network is not compatible with the desire of others to hitch an uninvited ride. There is no regulatory solution to this problem. The only solution is actual deregulation.

Forget Restructuring, Here's How to Deregulate

More substantial and robust competition in electricity will emerge if precious years aren't wasted trying to mandate it. Competition does not require granting all comers a right to dump their power into the grid for somebody else to manage. Instead, the artificial barriers that prohibit voluntary competition - in particular, the state-granted exclusive local service territories that protect incumbent utilities - should be removed. Until then, it is against the law to compete with the power company.

Ending the monopoly franchise would grant to real estate, telecommunications, and other entrepreneurs (as well as adventurous electric utilities) the clout to cut voluntary access deals, and to develop infrastructure by forming consortia and sharing rights-of-way with network industry cousins such as telecommunications and railroad firms. Entrepreneurs could provide electricity and communications services to residential and business customers, not just one or the other.

Just as thousands of miles in fiber networks, and even buried, redundant empty plastic conduits for rapid installation of next-generation fiber have been installed over the past few years, growth ought to be a feature of the power industry. Indeed, barring a breakthrough in wireless data transmission, a multi-billion dollar effort to rewire the "last mile" to household consumers with optical fiber may emerge - so sharing costs with power entrepreneurs could prove crucial. (Downloading a feature film on today's so-called "broadband" cable or DSL would still take an hour. Barring breakthroughs in wireless technologies, for tomorrow's heavily multimedia-dependent home, today's infrastructure is still inadequate.)

Other potential avenues for network competition and bottleneck competition include: private transmission companies; relatively new computer-controlled horizontal drilling technology that allows oil and gas companies to flexibly snake under streets with no disturbance above-ground; silicon-based switches that improve

Fred L. Smith Jr., CEI