Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Lighting Up the World
Why electricity is good—and more is better.
electricity costs contributed to the slowdown in productivity growth during the 1970s and early 1980s. 6 For U.S. states, higher electricity prices harm businesses and families and erode the ability of domestic firms to compete in their increasingly competitive global industries. In the developing world, however, high electricity prices wreak the most havoc since the people have almost no capacity to absorb them. In short, the world needs more electricity use, not less, as the advancement of electrotechnologies will continue to enhance public health and welfare through greater efficiency and a cleaner environment.
Cheap Electricity is Better
When he was governor of the State of New York in 1930, Franklin D. Roosevelt said:
“[H]igh rates, of course, bear hard on the individual. But from a social standpoint they are chiefly to be regretted because they restrict the use of electricity. Rate schedules should be so adjusted as to induce the freest possible use of electricity both in the home and on the farm.” 7
In 2002, the National Academy of Engineering identified societal electrification as the “greatest engineering achievement” of the 20th Century—a century that saw a global population increase of over 4 billion people, the rise of the metropolis, unprecedented improvements in diet and health, and the emergence of a vast system of transportation and electronic communication. 8 Access to electricity brought about a sea change to the American quality of life, ranging from childhood survival to clean drinking water to literacy. The socioeconomic benefits of the Rural Electrification Act of 1936 alone demonstrate the scope of electricity’s importance to living a longer and better life. Arguments that states, such as California, have grown their economy and flattened electricity consumption through efficiency policies are largely rhetorical. Regression analyses confirm that approximately 80 percent of California’s lower per capita use of electricity is due to unique characteristics like higher prices, milder weather, and smaller homes with more people. 9
In addition to providing the basic services for human existence, electricity offers a key opportunity to increase productivity. Consider the evolution from kerosene to electric lighting, which reduces costs by over 80 percent and fuel usage by nearly 90 percent. 10 As the price of lighting declines, more illumination services are consumed, which leads to a direct increase in economic welfare. Cheaper illumination allows household members to devote time at night to improve their literacy and education capacity. Such gains in productivity lead to an additional increase in the demand for lighting that offers even more economic output to the society. Households can divert hours once spent gathering fuel to working in the marketplace, which generates more income for the home and labor services for the economy. Efficient electricity networks generate powerful economic externalities by lowering the costs of telecommunications and information, which in turn generate numerous productivity enhancements. These outcomes contribute to an overall increase in quality of life, especially better health, less drudgery, more leisure, and greater communication.
Both the literature and real world are replete with examples of how socioeconomic progress hinges upon ever-increasing supplies of affordable and reliable electric