Free market failure: Electricity deregulation

October 24, 2006

Free markets generally outperform regulated markets — except sometimes.

Deregulation of electricity offered hope of lower electric bills for consumers in the south during the summer, and consumers in the north in the winter. A handful of states pushed through legislation that allows companies to compete in electric rates in a fashion similar to telephone competition: Different services on the same wires.

But electricity deregulation also cut loose the power generating foundation of electrical supply from the customer delivery services. Consequently, customer demand has not played as large a role in the creation of new electrical generation as anyone would have hoped. Many markets in the U.S. today face massive shortages of electrical generating capacity, not because of environmental concerns, but because the finances of deregulation discouraged power plant construction.

David Cay Johnston’s article in the New York Times yesterday details some of the problems: Read the rest of this entry »

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