A Bright Idea: Deregulate

A Bright Idea: Deregulate

Smith and Murray Op-Ed in Wall Street Journal
August 19, 2003

The massive blackout that shut off lights along the East coast, <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Midwest and Canada need not have happened. Yet because it did it provides us with a stark warning about how we have allowed minor issues to distract us when it comes to energy generation and distribution. Our economy, lifestyles and prospects rely on access to energy. But we won't let the electric companies function like normal businesses.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

 

Much of North America has grown profoundly anti-energy over the past few years, despite our dependence on it. We don't want nasty power plants, new or old, to pollute the countryside and rivers. We don't want unsightly electricity transmission lines spoiling the view. And we certainly don't want greedy power companies making a profit from giving us all the power we need for our air conditioning, refrigerators and SUVs. So we've tried to regulate them away.

 

Take the gauntlet known as New Source Review, for instance. This regulation was originally intended to slow down the building of new power plants for environmental review.

Yet in 1999 the Environmental Protection Agency decided that what had formerly been regarded as routine maintenance of existing power plants represented a new source of power. The Department of Energy's own National Coal Council concluded that EPA's approach "presents a significant barrier to projects at existing sources that would otherwise be taken to improve availability and efficiency."

 

Meanwhile, the depression-era law known as the Public Utility Holding Company Act prevents utility companies from cross-subsidizing other business activities from the profits made from their regulated activities. This means that, because of concerns over what the "robber barons" did in the '30s, we have very little interlinking of grids as each electricity company grew up in isolation. Today, this represents a tremendous risk. Interlinks create stability, but while PUHCA rules the activities of electricity businesses, there is little prospect of them being built. Nor are there any incentives to improve the technology of the grid by such means as low temperature superconducting links or grid surge protectors.

 

Although electricity generation was ostensibly deregulated in the '90s, the transmission grid remains highly regulated. Other network industries are spending billions rapidly building the sort of redundant networks that guard against cascading failure. Ending the regional monopolies would allow competitors to build competing infrastructure alone or in alliance with other network industries.

 

There are already people proposing more regulation, not less. Some have endorsed the central planning ambitions of the Federal Electric Regulatory Commission. Advanced in the name of "choice" and "competition," this policy would merely force grid managers to carry power from the generator to the consumer, and ultimately destroy the real market choice that the network needs. The plan would replace one set of restrictions on growth with another.

 

Alternative technologies that could provide energy without releasing carbon dioxide are years away from being cost-effective, which means that if companies are forced by legislation to adopt them in the meantime prices will go up and energy consumption will fall. The Senate will be considering the Lieberman-McCain Climate Stewardship Act, which would put a cap on greenhouse gas emissions.

 

Yet our economy and lifestyles require more energy consumption if we are to keep amassing wealth for ourselves, our families and our nation. The Pew Center on Climate Change found in a recent report that even if all the environmentalists' dreams of technology advances, a move to natural gas and fuel efficiency standards came about, we would still be producing 15 percent more carbon dioxide by 2035, 35 percent above the Kyoto target, such would be the national demand for energy.

 

We need the infrastructure to support that demand. We must allow electric power companies to improve their capacity, build their transmission facilities and interlink their grids in a way that encourages, not discourages the process. That will require a fundamental change in attitude from many who sweltered in the heat last week when their air conditioning units went off. In future, when the power goes off, don't get hot, get mad.

 

 

 

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Hyperlinks in this Article:(1) http://online.wsj.com/page/0,,2_1029,00.html (2) http://online.wsj.com/documents/wsj-outageTimeline081403.pdf (3) http://online.wsj.com/documents/wsj-outage081803.pdf (4) http://online.wsj.com/page/0,,2_1029,00.html