Electric Power to the People!


Nobel laureate in economics Vernon Smith and Reason Public Policy Institute's Lynne Kiesling get to the heart of the nation's electricity problems in today's Wall Street Journal:

A systematic rethinking of the power demand and supply system -- not just transmissions lines -- is required to bring the energy industry into the contemporary age. Eighty-five years of regulatory efforts have focused exclusively on supply -- leaving on dusty shelves proposals to empower consumer demand, to help stabilize electric systems while creating a more flexible economic environment.

Under these regulations, a pricing system has developed that is so badly structured at the critical retail level that if it were replicated throughout the economy, we would all be as poor as the proverbial church mouse. Retail customers pay averaged rates, making their demand unresponsive to changes in supply cost. Without dynamic retail pricing, no one can determine whether, when, where or how to invest in energy infrastructure. Impulsive proposals to incentivize transmission investment, without retail demand response, puts the cart before the horse and risks expensive and unnecessary investment decisions, costly to reverse.

A subscription is needed to read the whole damn thing. For free, here's the interview Reason did with Smith, who won the 2002 Nobel for his pathbreaking work in experimental economics. And here's a link to RPPI's Blackout Resource Center.