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Electricity Restructuring is No License for Central Planning

RTOs will perpetuate regional monopolies and political rate regulation.

Fortnightly Magazine - June 1 2002

technological control over power flows, making it less true that electrons won't respect borders; innovations in direct-current and other low-impact facilities that lessen siting problems, such as the advances proposed by American Superconductor; the possible advent of technologies that allow data transmission across power lines; and user ownership of portions of the grid.

Incumbent utilities threatened with such constant threats of entry will likely be induced to offer open access voluntarily; thus the aims of the forced open access advocates will yet emerge, but in a market-driven manner. The central planning approach would be properly shelved. Of course, if franchises are removed and competition doesn't start to emerge in some places due to the stickiness of long-ago government grants of monopoly power, policymakers may then consider temporary forced access, but only on a rifle-shot basis, and certainly not as the defining structure of the entire industry. No one will invest in network upgrades if they will have to share them. And making it worse, innovations like power flow technology merely sit on the shelf.

People get really confused about network systems. Both the grid itself and the stuff that flows over it are important-incentives are necessary to ensure that we invest and manage the grid, as well as to ensure that the flows are also rational.

Newt Gingrich pointed out that the regulated air travel infrastructure (the air traffic control system) is the major user of 1950s-era vacuum tubes. Do we want late in the 21st century to be using 20th century grid technology? The full range of technological options can only be exploited when prohibitions on competition are eliminated, to the benefit not only of the power industry but other network industries too. Replacing regulatory quarantines with free markets will mean that network industries can get the same punch out of the same wires and conduits.

We've done it right in the past: rail deregulation was real. The railroads were truly deregulated (save for a very small fraction-the "captive shippers"). Railroads were free to decide whether to allow a rival railroad to use its track. Reformers recognized that it was critical to free up both the tracks and the trains. The fear that control over tracks would suppress competition was proven illusory. Rates dropped dramatically as firms found creative ways to share moving stock while still retaining control over the tracks. The result has been that railroads have found ways to increase ton-mileage while still reducing total track miles. A similar result can be expected if we truly deregulate electricity.

If Congress will only scrap the central planning, seize-the-wires model, it would set in motion an electric industry restructuring that is as fully efficient and entrepreneurial as possible. Years would be saved and the need to revisit the industry to have its distortions legislatively ironed out, as is seemingly required for telecommunications, would be minimized.

A freed system would offer a range of service quality and options. Some utilities would remain vertically integrated, others would not. Some open access, some partial. New companies who focus entirely on the transmission side of