Dodging capacity payments might become an art form among load-serving entities and large electric consumers, as evidenced by Duquesne’s plan to exit PJM, as well as alternative market-designs...
Viewpoint: In Defense of Markets
The latest resistance to deregulation is built on a foundation of lies.
It is now more than 15 years since the UK deregulated its electricity market. Since then, there has been an inexorable—though fitful, and still far from complete—move toward competitive electricity markets around the world. Sadly, but not unexpectedly, this has been met by opposition and denunciations from a motley assortment of anti-market naysayers and recalcitrants, some driven by philosophical dislike, and others by the preservation of entrenched privilege.
The naysayers have a disdain for markets in all their guises. When not complaining about deregulation, they often can be found protesting the latest meeting of the World Trade Organisation. These groups advance the argument that electricity, or almost any form of economic activity for that matter, is too important to be trusted to markets.
This article does not attempt to mount a comprehensive defense of market economics. For many of us, the benefits of market competition are manifest, including greater operational efficiency, better allocation of capital, product and service innovation, customer choice, and the redistribution of risk from end-consumers to shareholders.
The alternative to markets is to follow the dictates of someone who presumes to know what is best for us. But, as Adam Smith said, “I have never known much good done by those who affected to trade for the public good.” Centralized command economics is a discredited concept that deserves to be consigned to the dustbin of history, along with the other vestiges of socialism.
“The reformer has enemies in all those who profit by the old order,” Machiavelli said. The recalcitrants are beneficiaries of the status quo—monopolists, and those in their orbit. Their opposition to markets is self-interested; seeking to preserve a regulated existence characterized by captive customers and risk-free profits, rather than be exposed to the challenge of competition (a number of seminal studies 1 have shown that regulation typically is sought by an industry to gain protection from competition). Historically, this has led to bloated and inefficient organizations, more focused on keeping the regulator happy than serving the customer. As stated by Pat Wood, former Chairman of the Federal Energy Regulatory Commission (FERC), “Regulating monopolies has not been a great success. I’d give the regulated market about a ‘C’ or a ‘C+’ on its best day.” 2 Regardless of the best regulatory intentions, the market always will be a far more effective arbiter of customer benefit.
A resistance to competition might be understandable—though not justifiable and ultimately futile—for those afraid they are on the wrong part of this evolutionary bell curve. But the real challenge for the monopolists—one they eventually must face—is to lift their game, not preserve their boon. Some seem keen to have it both ways, not objecting to free markets and competition as long as it’s not on their patch of turf. In