The August 26 editorial on avoiding electricity blackouts in the future did an excellent job of laying out the problem. As the editorial correctly points out, the key is to create an incentive to improve the reliability of the transmission and distribution grids. However, the editorial goes too far in claiming that “nobody has figured out how to persuade the owners of transmission systems to spend money to improve them when the benefits from those improvements flow not to local ratepayers, but to making power more reliable for users far away.”
The technique that works in the oil and gas industry, where I spent most of my career as an economist, is to allow transmission to be a joint venture. That permits shippers to be owners, thereby creating an incentive to redesign and maintain a reliable and efficient system. It also has the advantage of reducing the gaming that often accompanies the reservation of capacity. Owners take better care of assets than mere renters. Ask any landlord.
The maintenance of the grid is complex and ever changing. Allowing regulators and politicians to define the details will insure that their agendas will be served, not the interests of consumers.
Jim Johnston (JamesLJohnston@cs.com) is a member of the Board of Directors of The Heartland Institute. This letter to the editor was submitted to the Chicago Tribune on August 26, 2004.