Deregulation incorrectly blamed in power struggle

Although some diagnosticians seem to be narrowing in on Cleveland as the physical source of the initial problems that led to the massive Eastern seaboard electrical blackout last week, a definitive determination may still take awhile. Meanwhile, the discussion is turning to the kinds of policies that made such a failure likely and what kind of future policies might make it less likely.
As Fred Smith, president of the Competitive Enterprise Institute in Washington, D.C., said, Americans could do a lot worse than thinking of the failures and poor condition of the electricity transmission facilities in this country as another example of the “tragedy of the commons.”
Years ago UC Berkeley biologist Garret Hardin wrote an influential essay on the concept of “tragedy of the commons” where natural resources are concerned. When resources are held “in common,” as grazing pastures outside villages were in medieval times, for example, they tend to be overused, exploited and depleted, since it is in the interest of each individual user to use as much as feasible for his own purposes. Thus “common goods” tend to be among the most environmentally degraded.
A similar analysis applies to the transmission lines or power grid. “When they deregulated certain aspects of electricity,” Smith explained, “they left the transmission lines as ‘common carriers,’ heavily regulated by government at several levels and available by decree to anyone who wanted to use them. That meant there was no incentive to invest in upgrading them and every incentive to overuse them, beyond their safe carrying capacity.”
The partial deregulation undertaken in several states has led to new generating capacity. But those who make policy have had trouble getting deregulation right when it comes to networks. In airlines, telecommunications, cable and electricity, the United States has accomplished only partial deregulation, leaving important aspects of the networks either in the hands of government or still tightly regulated. That deters innovation and leads to congestion and higher prices.
Smith suggests getting rid of the Public Utilities Holding Company Act, which made it illegal to have a national electric company and affirmed regulation at the state level. Then he suggests declaring electricity a good in interstate commerce (as in fact it is), which would mean that no state can bar its residents from buying electricity from whatever willing supplier is available.
If the United States is not ready to eliminate price controls on the existing electric grid, it should at least allow new construction and upgrades to operate in an unregulated environment. That would provide incentives to improve existing transmission lines and build new ones.
Perhaps the worst approach — though one often touted — would be to blame shortages on deregulation and return to the old model of strict public utility monopolies.
It can be seductive to imagine that monopolies will be more efficient and responsible, but it has hardly ever worked out in practice — and most certainly was not the case with electricity monopolies before our recent flirtations with partial deregulation.