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Power to the People

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-America's electricity infrastructure is bursting at the seams, as demand for juice outpaces the grid's capacity to accommodate the flow. Massive investment in new wires and transmission towers is necessary to avoid an increasing threat of system-wide failures of the sort that left 10 million in the Northeast without power during the summer of 2003, warns the North American Electricity Reliability Corporation, an industry watchdog.

Yet even if the investment were forthcoming, expansion of the grid is hindered by legal challenges from property owners who don't want to live next to humming power lines that mar their landscapes and decrease the value of their homes. Endless court battles waste the time and money of both parties, while America's system of transmission towers and distribution lines becomes more tenuous.

There is a better way. To meet our electricity needs without forcing citizens to live near unsightly electricity infrastructure, we must end the government's stranglehold on the electricity industry.

The provision of electricity is one of the most regulated businesses in America. Government controls virtually every step of the process: Electricity generation is burdened by onerous permitting; utilities are bestowed government-mandated monopolies to transmit and distribute the juice; and prices for electricity must be approved by state commissions.

In this regulatory model, conspicuous waste and inefficiencies persist because there is no mechanism for change. Absent competition in a real market, there is no incentive for the industry to alter its business model.

LOGIC OF MARKET FORCES

For example, in many areas of the country, electricity costs consumers the same amount of money whether they use it at 4 p.m. or 4 a.m., even though the cost of generation is much greater in the afternoon, when demand is higher.

This defies logic. If electricity were priced in accordance with market forces, rather than government mandates, demand would decrease during peak hours when electricity was more expensive. Decreased peak demand, in turn, would diminish the need for new transmission towers and distribution poles.

In some markets, government is trying to correct this pricing paradox by implementing a state-controlled pricing scheme known as "demand-side management." But why should government continue to manage the price of electricity? What is so difficult about pricing electricity according to what it actually costs? Demand-side management is just another way in which bureaucrats and regulators can keep the energy industry under their thumb.

Government-granted monopolies for the transmission and distribution of electricity undermine the entrepreneurial incentives to embrace innovations that could transcend the grid--and thus render obsolete the legal battles between utilities and property owners.

The status-quo regulatory regime provides no motive for electricity entrepreneurs to emulate the sort of private partnerships that have been instrumental to the growth of the next-generation, fiber-optic telecommunications infrastructure.

SHARING THE COSTS

In a truly competitive market, independent power producers might find it worthwhile to team up with telecom firms and property developers to share the cost of building new underground networks to provide both electricity and communications to consumers.

As long as government preserves local monopolies in the transmission of electricity, growing the existing grid is the only way to accommodate increased demand for electricity, which ensures that utilities will butt heads with property owners. True competition, on the other hand, would allow distributed generation to evolve in a way that could allow consumers to power their homes and businesses independently of the grid. That would reduce demand for new transmission towers and distribution poles.

New technologies have the potential to revolutionize the electricity industry. For instance, microturbines--small-scale power plants that run on natural gas--already exist in a range of sizes that could electrify a house or a community. Their proximity to end-users means that energy given off during the generation process can be recycled for space heating, drastically increasing energy efficiency.

So, instead of stringing power lines hundreds of miles from a huge generating plant to consumers, it is possible, and increasingly cost-effective, to install a custom-made microturbine near a residential development or business park, and bypass the grid altogether.

Yet in most regions, this would constitute a violation of a local distribution franchise, and therefore would be illegal. Similarly, government-backed distribution monopolies could stand in the way of localized exploitation of alternative energy by entrepreneurs.

It is impossible to know how an unregulated, truly competitive industry would look. The only certainty is, the industry won't change as long as the government chokes competition.

Yet change is precisely what the industry needs if it is to accommodate America's ever-growing demand for electricity while preserving the beauty of residential neighborhoods and bucolic countryside.