Division of Labor

18 August 2003


Electricity and Regulation

In the coming months, a load of nonsense will be spoken about the role of regulation and markets in the context of the recent darkness in America and Canada. Free traders will claim that the government is at fault for denying the power of the market to provide power for the people, and the friends of Big Government will demand re-regulation of the industry. Both are providing little light in the debate.

The fact is that the North American electrical supply as currently designed has a serious problem in maintaining the infrastructure. Most utilities make profits by trading power to accommodate shifting demand -- that is what the market is designed to do and it does it well. The utilities have no interest at all in paying upkeep on the equipment that helps that power move from region to region. Shareholders want profits, not added costs.

Worse, the current power grid was designed decades ago, before power trading and before terrorism came to the US and Canada. It is like trying to send a bullet-train down a track designed for steam locomotives.

The solution is a combination of government and private industry. Government (American and Canadian, federal, state, provincial and local) must set guidelines for a new system. It must have the ability to move several times the amount that can currently be moved. It must have multiple redundancies. It must be declared part of American and Canadian national defense, and protected just as surely as any military base. Industry must be given the role of designing equipment to meet these guidelines, construction and management of the grid when it is rebuild.

And there must be sacrifices. Consumers must pay more, utilities must accept lower margins, government must monitor better. There must also be every effort made to create greater generating capacity -- and that is going to degrade the environment. It is, unfortunately, and either/or proposition. Keeping to the middle of the road only retains the current system, which as August 14, 2003, proved, is pitiful.

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