Power Deregulation - Fact vs Failure

The AP reports that power deregulation in the 16 states that have enacted reform since the late 1990s has failed to result in lower electric rates for consumers. The piece spends significant time on an anecdotal account about the rising electricity bill of a single woman raising four developmentally challenged children on $1000 a month - with a $450 electric bill.

The absurdity of the evidence doesn't seem to occur Ryan Keith, the author of this blatant hack job. He notes that the rising cost of fuel during this period ensured that electric rates would be bound to rise. And in fact, they have risen precisely in line with the cost of generation.

But the trump card by which the deregulation of the electricity generation industry is declared an unabashed failure? The absence of competition developing outside Texas. Think about that for a minute. The reason deregulation fails to lower electric bills is that the states that enacted "reform" failed to ensure the fundamental root of deregulation - allowing free entry into the industry. Even in Texas, where the airwaves are full of competing rate plans, the rules hardly allow for full and free competition.

So what solution is proposed by deregulation antagonists? Re-regulation or state-owned utilities. Ignoring for the moment the appalling record of public power utilities - the real problem with the rate caps planned under re-regulation is that they ensure that the chronic underinvestment in power generation and transportation infrastructure that plagues America will continue.

Proponents of regulation forget that you cannot get something for nothing. Have we forgotten the electricity outage that turned off the lights for much of the northeastern United States so quickly? Officials might have tried to shift blame to the Canadians, but the truth is that the power grid is running at full capacity and its aging components aren't getting adequate maintenance.

Without competition to stay electric utilities' hands, a cost-plus culture evolves whereby the utility pays whatever it wants to get the job done and just passes the cost on - plus a small profit margin. If there is no incentive to reduce costs, innovation stagnates. Do state-owned utilities advocate peak-time pricing and real-time metering that send signals directly to consumers to reduce their use of power? Of course not, it doesn't create profits and product differentiation is meaningless to a monopolist.

Power deregulation has not been a failure, it's implementation has been. And deregulation hasn't been substantially worse than regulation in any event. The solution is to allow a truly free market, not just crawl back into the comfortable arms of monopoly.