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Viewpoint: In Defense of Markets

The latest resistance to deregulation is built on a foundation of lies.

Fortnightly Magazine - June 2007

fact, major monopolies from some of the least competitive regions in the world, such as in the southern United States and France, which were amongst the first to take advantage of deregulation in other jurisdictions. Hypocrisy for many, but great business for them.

Excuses, Excuses

These odd bedfellows—socialist “true believers” and corporate monopolists—have advanced an ever-changing progression of arguments over the years, shifting to a new excuse as soon as the old one gets stale. A few favorites follow.

** “Markets in electricity won’t work.”

The traditional monopoly utility model is based upon a belief that the supply of electricity (or natural gas, for that matter) is physically and financially inextricable from the infrastructure required for its transportation, and therefore must be managed by a single entity. Over the last 20 years, economists and engineers have broken down this conception to show that the financial flow of electricity can be separated from its physical flow, and therefore that supply rights need not be a monopoly belonging to the owner of the transportation infrastructure. These insights also have made it clear that there is nothing so unique about electricity that it cannot be treated, in a financial sense, like other commodities, and there is no reason why the benefits of market competition cannot be extended to it.

Our argument, however, need not be made on a theoretical level, when an abundance of practical proof is available. Markets in electricity already have been proven to work, as demonstrated by success stories, in the UK, Nord Pool, Australia, and the U.S. Northeast. For example, the Center for the Advancement of Energy Markets estimated that in 2002 the total cost savings to participants in the PJM market totalled $3.2 billion, and that future cost savings will amount to $28.5 billion, purely as a result of market restructuring. 3

** “OK. Electricity markets might work in general, but we’re special.”

With the undeniable existence of working electricity markets, the next stage of retreat for the recalcitrants is to claim that their situation is so unique that market forces should be held in abeyance for them. This has been characterized by a litany of excuses, including:

For each new “show stopper” excuse, the problem is not only solvable, but, as can be seen from the counterpoints above, markets that include these features often already exist.

** “But What About the Blackout?”

The 2003 blackout has been used to promote a number of agendas that have little or nothing to do with the actual event. One of the most absurd of these claims is that the blackout came about because of markets and deregulation. The obvious implication seems to be that if the industry was run by regulated monopolies, this would not have happened.

But it did happen, in 1965 and 1977—prior to any deregulation. Additionally, the First Energy system, where the 2003 blackout started, 4 was not part of any competitive market at the time, 5 while the regions where the blackout was stopped (PJM and ISO New England) both have long-standing markets.

Fundamentally, the blackout was a