An Electric Discussion, Part 2
Here’s the seemingly semantic point about deregulation and electricity prices: how is a system where the lowest cost producer is forced by law to set prices at the level of the high cost producer considered “deregulated”. This is more than semantics. Because the current system is considered “deregulated”, a key Rhode Island official is arguing that tighter government contol of the power industry is self-evidently necessary. This is from a second Pawtucket Times article from Jim Baron…
Count Special Assistant Attorney General Paul Roberti, who specializes in regulatory issues in representing the Division of Public Utilities, among those who think deregulation is at least part of the problem….Mr. Roberti is arguing that the failure of the current set of pricing regulations can only be interpreted as evidence supporting the need for stronger price regulations, but he needs to do a bit more explaining to make his case.
Deregulation, Roberti said, “is jeopardizing our reliability because it is not promoting fuel diversity (coal, waterpower, nuclear, solar and wind generation as opposed to oil and natural gas-fired plants), it is not promoting conservation and worst of all it is not promoting sufficient (capacity) to meet the peak day in summer and the peak day in winter, which means we are facing rolling blackouts without an administrative surcharge. That all adds up to failure. They may not believe it, but the market has failed.
A big part of the current problem, apparently, is that current regulations force all electricity to be priced the same, regardless of the cost of generation. Also, it is unclear how increased regulation limiting the price of electricity will promote conservation. Keeping prices artificially low promotes increased consumption, not conservation.
Mr. Roberti’s case is based on the tragically flawed idea that good intentions guarantee good policy…
“The market has one thing on its mind, which is profits,” Roberti said. “Regulation is the heart that wants to make sure that consumers get essential utility lifeline services at the lowest reasonable cost. That is the role of regulation.”But the legislators who wrote the current set of regulations presumably had good intentions. Why should we expect them to do any better this time around? As Justin just pointed out, RI legislators have a tendency to take their regulatory powers a step (at least) too far, ultimately doing more harm than good.
Making a case for stronger, weaker, or status-quo regulation depends upon explaining the role and the concerns of National Grid. I can’t quite determine from what I’ve read so far what National Grid’s market incentives are supposed to be. If the FedEX/UPS analogy that National Grid suggests is accurate, then they are collecting the same fixed rate no matter what they deliver. Is that the case? Or are they a true wholesalers, buying from producers and reselling at a markup to retail customers? In either case, what is their incentive to shop around for the lowest prices?
We’re starting to ask the right questions. Eventually we’ll get the right answers. And then turning the right answers into good policy? We’ll cross that bridge when we come to it.