11 June 2007

Bipartisan Support for Competitive Energy

The Courant had a piece today regarding energy reform in Connecticut. The article lays out the ambitious plans that some Democrats had to re-configure energy generation and delivery in Connecticut as we know it - scrapping the 1998 deregulation in favor of a massively government-run system of competition controls, price ceilings, and windfall profits taxes. The energy reform compromise that passed the Legislature focuses on a measures that reduces demand, as the Courant article elaborates, without substantively dealing with the long term future of energy prices and demand in Connecticut.

Opponents of deregulation have been nothing if not a consistent lot of folks, having long been dedicated to the idea that the government of the state of Connecticut should have a far greater hand in "protecting" citizens. Proponents of deregulation have long cited the long term benefits of competition and free enterprise to ultimately reduce the price of energy.

In truth, the problem with deregulation is that we got the deregulation but never got the free enterprise competition to go with it. The few big generators remained the same and the prices they charged just went up as the price of crude oil and other fossil fuels increased. Dominion's Millstone nuclear plant in Waterford provides some glimpse into a potential future, but the ongoing jitters about nuclear energy (also see here and here and here) make this a largely unviable long term solution. With nuclear off the table, coal powered plants hampered by environmental concerns, and natural gas or oil plants constrained by the high cost of crude oil, and all the corn farmers are in Iowa so ethanol isn't going to do the trick. Furthermore, the prohibitive costs associated with siting and building a power plant are such that many companies, especially new start-ups that one would rely upon in a free enterprise situation, are deterred from entering the market.

The solution to the problem has to be found then, in many individuals or smaller subunits of people banding together to produce their own energy for consumption - fuel cells for single homes, wind mills or solar panels for a single city - each place will choose a different generating scheme based on price and delivery costs. By massively "democratizing" energy generation, deregulation will work as these smaller subunits become cost competitive with the ever-skyrocketing CL & P or UI rates.

Free enterprise, despite its critics, has a demostrated and clear ability to reduce the price of goods and services when we actually get free enterprise. In the cast of energy deregulation, we got the deregulation without the accompanying free enterprise competition. Until we fundamentally change the model from a few, large unit producers to localized, even individualized production, then we will be stuck with high energy prices and Democratic legislators who can't see the forest through the trees.