D is for Deficiency

The price of competition in the murky waters of the market for electricity is the stability of the grid. Across North America, politicians reach into their grab bag of catch words and they find deregulation at the top of the pile. In deregulated California amongst the unlit lights and rolling blackouts they were confident of the cataclysmic benefits of deregulation to which this day they still enjoy its joyous effects.

As a preface to the giant that is deregulation, one could look toward the sunny and beautiful state of California. Peasants and peons alike have heard of the great beheading of the Enron beast but few know what damage and carnage it had wrought in its time. The culture dish in the California market opened itself to grid manipulation, a corrupt scheme that cost several engineers their licence (and one hopes they never gain it back). Worse still, after Enron blew out transmission lines like it snuffed out competition, there was a void in the entities willing to pay for the repairs.

Deregulation invites competition which in turn brings a market organization of a resource essential to survival. Presuming that Canada is not filled with citizens with the power of the Hulk, getting angry each and every hour during winter, one needs electricity to survive. A corporation which must contend in the market seeks to cut its cost, maximize its profits and reduce overhead. Markets do not provide resources to all, it provides to those who have the most money to give. The first cost that is discarded by the grandmaster in the hierarchy of management is the maintenance of transmission lines and the construction of new lines.

In the state of Ohio beautifully deregulated to the point where concepts such as “maintenance” or “failsafes” became unnecessary. They were obsolete. When another corporation can pay the money to build the failsafe, repair a transmission line or construct new infrastructure why do it yourself? The invisible hand of Adam Smith left the grid unsullied by the hands of these corporations even up to the fateful day in August 2003 when an interconnect rotted through and fifty million people plunged into the darkness.

Our government is not noble in its purpose to bring us electricity with its crown corporations. Intervention does not seek to stifle the capitalist man with the oppressive boot of socialism. Electricity is monopolized simply because it is a natural monopoly wherein which a single corporation provides the product cheaper than do several corporations. The concept is fairly simply to describe in real life. Three electricity corporations each building an electric grid is obviously far more expensive than a single electric grid providing energy.

When you see a market monopolized a reflex reaction is to state, “we need to introduce competition”. The logistical nightmare of multiple electric grids is a technical concern and all electrical engineers can appreciate the difficulty in establishing different grids for different corporations. A quick glance at cell phones show you the confusing soup of cell towers and radio signals that create that annoying ring tone that interrupts your movies and also why it’s so expensive.

In basic economics, there exist three simple choices to the matter at hand. Profit maximizing price, average cost pricing and marginal cost pricing. The knees of the down trodden quake at the sound of profit maximizing price. The coffers of the utilities companies overflow as our country freezer is filled with human popsicles. There is the marginal cost pricing, matching social benefit with industrial cost. When it entitles a loss to the operating utility it’s not a surprise it’s a course not oft pursued. We’ve been left with our last option, average cost pricing. The utility earns normal profit and the consumers are left with the lowest price possible without incurring a loss for the company.

When you can simply regulate, why would you deregulate? An electric grid you can depend on is priceless.

Ultra_punk