From MasterResource
By Robert Bradley Jr.
“A free market in electricity would terminate the current provisions of landmark federal statutes, such as the Power Act of 1935, Public Utility Holding Company Act of 1935, Public Utility Regulatory Policies Act of 1978, Energy Policy Act of 1992, Energy Policy Act of 1995, and Inflation Reduction Act of 2022.”
My new AIER primer defines and applies the free-market classical liberal worldview to electricity. This is particularly important because this sound perspective has been both forgotten and misapplied.
Forgotten regarding the criticisms of traditional public utility regulation that emerged in the 1960s; misapplied regarding the current mandatory open access era involving central planning at the wholesale level with ISOs/RTOs.
My major points with quotations follow:
1. Electricity is a free-market product with a clear free market, classical liberal meaning: the separation of government and electricity in all phases and in the whole.
“A free market in electricity is defined as the absence of government ownership, control, or regulation. Electricity and government are separate, apart from legal protection against force or fraud. Government neutrally upholds the enforceability of private contracts and other market norms under the rule of law.”
“… contra government direction and control, from municipal ownership to franchise protection and cost-based rate ceilings (public-utility regulation); to mandatory open access for outside parties (an uncompensated taking); to renewable requirements (the forced energy substitution of wind and solar).”
“Grid electricity was never considered a common-pool resource at odds with definable private property rights and efficient operation. The ‘commons’ theory of governmental organization arose only with the government-mandated open-access transmission, itself a clear violation of private property rights.”
2. Electricity, while having unique qualities, is subject to market forces and does not require government intervention or ownership. The US power sector has a clear free market history for empirical evaluation—and no demonstrable market failure.
“Highly coordinated multiphase operation, evident in petroleum and natural gas (in a free market), was required by the uniqueness of electricity. Governmental franchise protection was not necessary.”
“The market era was characterized by declining rates, expanding usage, and reliable service…. Market-directed integrated operations resulted in unprecedented affordability and continuous, coordinated service.”
3. Electricity is the second-most regulated sector of the U.S. economy today, next to money and banking (outside of the military industrial complex). It is an unholy mix of public utility regulation; government-enabled dilute, intermittent wind and solar; and mandatory open access.
“Today, a growing number of regions are subject to rising power rates, conservation appeals, and service interruptions.”
4. Mandatory open access has introduced its own problems under de facto socialism, particularly pricing for reliability.
“Economic calculation has bedeviled ISO/RTOs…. Some regions have implemented ‘capacity charges’ to reward generators for standby capacity. Others have banked on ‘energy only’ prices, betting that ample capacity would be incited by periodic price windfalls.”
“Consumer welfare and ‘the obligation to serve’ have been lost in the transition to central planning, as well as in the governmental quest for decarbonization. Worse, agency errors … have been protected by sovereign immunity.”
5. Public policy going forward begins with federal deregulation of electricity (state deregulation would need to follow).
“A free market in electricity would terminate the current provisions of landmark federal statutes, such as the Power Act of 1935, Public Utility Holding Company Act of 1935, Public Utility Regulatory Policies Act of 1978, Energy Policy Act of 1992, Energy Policy Act of 1995, and Inflation Reduction Act of 2022.”
“Competition could entail direct rivalry with duplicate facilities, or it could be a single firm maintaining a market against potential rivals. Either way, the private and public costs of government intervention could be bypassed and market signals established.”
