Electricity Prices and Deregulation, Again

Michael Giberson

Another David Cay Johnston article in the New York Times concludes, surprise, deregulation leads to higher electricity prices. The article has led to a burst of blogging, including by Mark Thoma, Felix Salmon, and the Economist‘s Free Exchange.

Johnston’s piece highlights the results of calculations by Marilyn Showalter’s group, Power in the Public Interest, which reports prices increasing faster over the last several years in deregulated states as compared to prices in regulated states. (Indeed, it is hard to see what really is news in the new Johnston article as opposed to the article he had in the Times two months ago. Both rely on analysis by Power in the Public Interest and use Showalter quotes to motivate the article, the difference is mainly that Power in the Public Interest has updated some numbers.)

The topic demands more time and attention than I can provide this morning, but the linked discussions are worth reviewing.

I’ve been a critic of the Cato Institute position on electric power restructuring — I still am — but I think that Peter Van Doren’s quotes in the September version of Johnston’s article highlight key points: difficulty in designing a competitive market, particularly when the transmission system isn’t designed to support a market, fuel costs are an important factor — an interesting comparison will emerge when fuel costs fall, my expectation is that “deregulated states should see prices fall faster while regulated states will continue to increase before they, too, begin to fall. More analysis is needed, but the posts linked above, and the links therein, can get the interested party started.