[news] Faith-based deregulation

[resist]

-----Forwarded Message-----
From: moe <moe at kootenaycuts.com>
To: project-x at resist.ca
Subject: [pr-x] Faith-based deregulation
Date: 19 Aug 2003 10:46:46 -0700

i'm actually just sending this because I love the phrase I quote in the header.

moe


August 19, 2003

OP-ED COLUMNIST

The Road to Ruin

By PAUL KRUGMAN
http://www.nytimes.com/2003/08/19/opinion/19KRUG.html?th=&pagewanted=print&position=

We still don't know what started the chain reaction on Thursday. Whatever
the initial cause, however, the current guess is that a local event turned
into an epic blackout because the transmission network has been neglected.
That is, the power industry hasn't spent enough on the control systems and
safeguards that are supposed to prevent such things.

And the cause of that neglect is faith-based deregulation.

In the past, electric power was considered a natural monopoly. It was and
is impractical to have companies competing either to wire up homes and
businesses, or to build long-distance transmission lines. Because effective
competition was impossible, power companies were given local monopolies,
and regulated to keep them from exploiting customers.

These regulated monopolies took responsibility for the whole system —
transmission and distribution as well as generation. Then came the
deregulation movement. It argued that a competitive market could be created
in power generation (though not in transmission and distribution), and in
much of the country utilities were forced to sell off their power plants.

In fact, effective competition has been elusive even in power generation.
In California, deregulation led to one of history's great policy disasters:
energy companies drove up prices by creating artificial shortages. This
plunged the state into a crisis that ended only after much of its
electricity supply was locked up in long-term contracts, and price controls
were imposed on the rest.

Incidentally, there seems to be a weird reluctance to face up to what
happened in California. Since the blackout, I've seen national news reports
attributing California's woes in part to environmental restrictions, while
ignoring the role of market manipulation. Huh? There's no evidence that
environmental restrictions played any role; meanwhile, even the Federal
Energy Regulatory Commission, which strongly backs deregulation, has
concluded that market manipulation played a major role. What's with the
revisionist history?

Anyway, market manipulation aside, energy experts have long warned that
deregulation would lead to neglect of the grid. Under the old regulatory
system, power companies had strong incentives to ensure the integrity of
power transmission — they would catch the flak if something went wrong. But
those incentives went away with deregulation: because effective competition
in transmission wasn't possible, the companies providing transmission still
had to be regulated. But because regulation limited their profits, they had
little financial incentive to invest in maintaining and upgrading the
system. And because of deregulation elsewhere, responsibility was diffused:
nobody had a strong stake in keeping the system reliable. The result was a
failure not just to add capacity, but to maintain and upgrade capacity that
already existed.

These experts didn't necessarily oppose deregulation; their point was that
deregulation could lead to disaster unless accompanied by policies not just
to keep the grid reliable, but to expand it. (To make competition possible,
a deregulated system needs considerably more transmission capacity than one
based on regulated monopolies.) But their warnings weren't taken seriously;
politicians and deregulation enthusiasts simply had faith that somehow "the
market" would take care of the problem.

Four years ago, Paul Joskow of M.I.T. told FERC: "Proceeding on the
assumption that, at the present time, `the market' will provide needed
network transmission enhancements is the road to ruin." And so it was.

Have we learned our lesson? Early indications are not promising. President
Bush now says that "our grid needs to be modernized . . . and I've said so
all along." But two years ago Tom DeLay blocked a modest Democratic plan
for loan guarantees for system upgrades, calling it "pure demagoguery." And
press reports say that despite the blackout, the administration will bow to
pressure from Senate Republicans and put on ice the only part of its energy
plan that had any relevance to the blackout, a FERC proposal for expanded
oversight of the transmission system.

This nation needs to invest billions in its power grid, yet given recent
history, it's crucial that this investment not be simply another occasion
for energy-industry profiteering. Somehow, I'm not optimistic.




Copyright 2003 The New York Times Company

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http://www.kootenaycuts.com/
"S/he who fears not the death of a thousand cuts will dare to unhorse the
emperor."
- Ancient Chinese proverb


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