CBS Hints at More Regulation for the Power Industry

     The CBS “Evening News” recently hinted that more regulation, not less, is needed to improve the nation’s electrical grid.


     Reporter Trish Regan’s August 3 story displayed a chart showing an increase in the number of blackouts in the past few years. Regan then complained that after years of gradual price increases, many major electrical utilities are now increasing rates dramatically, including a 72-percent rate hike by the BGE, the utility that supplies power to metropolitan Baltimore.


     “The industry defends its hikes, saying prices were artificially low for decades because of government regulation,” Regan said, introducing a sound bite from Bill Brier of the Edison Electric Institute, who blamed rate caps for holding down prices below inflation in many cases.


     As rates go up and the power companies bring in more revenue, “the utility companies say they plan to spend $17 billion a year over the next decade to make these improvements,” Regan noted.


     “But Trish, isn’t that what they always say,” complained Schieffer, who suggested even more regulation was in order: “Is there any way they could be held to that?” he wondered.


    Prompted by Schieffer’s question, Regan suggested the U.S. electrical industry needs “economic incentives” such as the fines that New Zealand’s government slaps on power companies who suffer power outages.


      But while Regan saw a case for even more regulation of the power industry, she missed an opportunity to examine how regulatory experts argue that artificially low prices set by the government have harmed the consumer, such as in Maryland and California.


      She could have talked to the Maryland Public Policy Institute’s (MPPI) Thomas Firey. In a June 15 op-ed in the Baltimore Examiner, Firey blamed politicians aiming to keep voters happy with low energy prices for the electrical system’s troubles.


     Maryland lawmakers voted in 1999 for a flawed energy regulation bill “to guarantee low prices. But more competitive markets do not guarantee low prices — they only guarantee that prices more accurately reflect costs,” MPPI’s senior fellow noted.  


     “Market signals” provided in deregulated prices “can be painful, but they also provide the right incentives to suppliers, consumers and innovators. That’s preferable to when regulators have been required to protect monopoly utilities’ bottom lines in Maryland and other states,” Firey added.


     The same problem existed in California’s “deregulation” crisis, the Reason Foundation’s Adam Summers argued in an Oct. 29, 2005, commentary in the Ventura County Star.


     “California has never experienced true energy deregulation. The ‘deregulation’ implemented in 1996 left price controls in place,” Summers noted, adding that as prices were capped “below market prices, California limited the profitability of the industry.”


     In short, “the price caps prevented energy producers from passing the increases on to consumers, resulting in the bankruptcy of PG&E and the near-insolvency of Edison.”