Why the blackout in the northeast is a call for more deregulation, not less
Many people have been quick to blame deregulation of electricity markets for the blackout disaster in the northeast. When I talk about deregulation, I'm really talking about the combination of the loosening of government controls over the industry, and the privatisation of power utilities and grids. Let me just make this disclaimer though. No matter what happens, there is no way to guarantee that another blackout along the lines of what happened last week will not occur again. We cannot predict with absolute certainty that the lights will never go out again.
Many of the media's talking heads and national politicians have blamed a lack of investment in the electricity grid for allowing the blackouts to become so widespread. In some cases, a publicly owned utility operates and owns the electrical grid, and the sources. In others, the powerplants are privately owned, but the grid may be owned by the state, or another private company. In all cases, the same problem occurs. Power generation, and power distribution are cases of natural monopoly. Because of high start-up costs, there are few or no new entrants to the industry. The response to this monopoly position is to regulate the utilities. This makes sense because monopolies free to choose their own price and production will tend to produce less than what the market needs. Unfortunately, the urge is to have average cost pricing which reduces the company's profits to zero, which in turn gives no incentive for the company to reinvest in it.
There is nothing inherently wrong with having publicly-owned utilities. The main problem is that the government must stump up the cash to pay for needed upgrades and expansion of the system, which tends to result in higher taxes. Many state, provincial and national governments have become incredibly tightfisted with their budgets, and as a result privatisation has become the only option. At least private investors make their investments willingly. Though, without government subsidies, consumers may appear to face higher prices.
In short, the problem with regards to the blackouts has been that the power grid has not received the necessary infrastructure upgrades, most likely because governments have not been able to afford to upgrade the system, or private utilities have been denied the incentive to make the necessary upgrades because over-regulation has significantly reduced their profits.
More deregulation would entail more privately-owned utilies and a privatised distribution grid, each with the freedom to make profit-maximising investment decisions (and thus the necessary upgrades). More deregulation would also entail less disruption of the energy market with subsidies, and perhaps lower taxes (or at least more money for social programs).
No one wants to pay higher energy prices, but perhaps higher prices are just the kick in the pants that this world needs to be more realistic about energy consumption. People should not pay some lump sum for electricity access. Consumers must be billed by consumption. The costs could be scaled to discourage profligate usage.
Ugh, like all other topics, I hope to get back to this.
