Perspective

Hopes and dreams sag and fail, like an overheated power line.

The big blackout has reinvigorated the debate about deregulation, snaring hopes and dreams and bringing them back to Earth. For there can be no doubt that electric restructuring, through its emphasis on market prices and market incentives-but none for transmission-contributed mightily to the recent collapse.

As some had foreseen, the new market models forced greater use of the grid, but did little to beef up the transmission lines that were left to carry the load of competition. A soupçon of planning and of command and control measures might have gone a long way to averting this latest breakdown, not to mention the next one, which is inevitable.

When all is said and done, the blackout illustrates again what we once knew but somehow have now sadly forgotten: that electricity supplies huge external benefits in sustaining modern society, so that catastrophe will surely ensue if those benefits are lost through a failure of the power system. And this value cannot be measured by its worth to individual customers. Rather, all members of society benefit indirectly from maintaining the system as a whole. Therefore, the market price of electricity does not provide a realistic measure of the value of a reliable supply to society. Reliability likely will not receive its due under a system where the market does the regulating.

Of course, for years we've heard earnest pleas that power systems in this country were excessively reliable-that utilities forced consumers to pay for excessive and expensive reserve margins they did not need or want. If the market price of electricity could find its own level, consumers could get the degree of reliability that they wanted and were willing to pay for, deregulation advocates argued.

Yet these arguments lose weight in the face of a real, extensive blackout like the recent one in the Midwest and Northeast, which led to hundreds of millions of dollars in economic loss. The intimate relationship between society, economy, and reliable electric power was revealed for all to see, experience, and appreciate.

All of this should not necessarily cause one to abandon the idea of restructuring, however, but instead should lead us to realize that reliability cannot be fully committed to the Invisible Hand. Human needs can be assured adequately, but only through central planning and recourse to unapologetic regulation.

Can we solve our problems with power reliability simply through greater market incentives for investment in transmission?

No, not entirely. That's because the discoveries and realizations that emerged from the California debacle of 2000-2001 reinforce the notion that reliability remains one among a number of qualities of the power system that cannot be left entirely to market forces, nor even to a system of financial incentives geared to preserve reliability by encouraging more investment in the grid. Of course, it is important that the investor in transmission be provided with the resources to do his duty.

And what is that duty? The answer is complex, but its discovery and definition must come from central planning and firm regulatory