Electricity Deregulation Under Siege II: Temptation of the Kleptocrats

01 December 2017
By Dr. Jeff D. Makholm

In an upcoming article in the December 2017 issue of the Wiley journal Natural Gas & Electricity, NERA Managing Director Dr. Jeff D. Makholm examines electricity deregulation and the problems that exist in electricity markets. Secretary of Energy Rick Perry’s recent proposal for regulatory action to the Federal Energy Regulatory Commission (FERC) makes clear the regulatory problem in the US. It would be easy to frame the proposed rule as simple protectionism for the coal industry and existing nuclear plants. But there is more to the proposed rule than that. Power markets have persistent problems in squaring competitive ideals with industrial realities. Those problems make the clash between gas and wider power markets inevitable.

Dr. Makholm posits that the proposed rule seems to pit those who would continue to pursue and strengthen competitive electricity markets against those special interests that would rather reregulate a part of the wholesale power market to claim economic rents for themselves. This is not a novel tension, and one addressed in the last book by Dr. Alfred Kahn, Dr. Makholm’s former NERA colleague. Dr. Makholm concludes that the power markets have not yet reliably, or consistently, solved the problems of highly unlikely events and the reasonable search for supply or fuel diversity. Dr. Kahn would have hoped that the result of FERC’s investigation into Secretary Perry’s proposed rule would mean more emphasis on tackling the genuine economic problems (as represented by the Polar Vortex) and less toward protectionism or a desire to reimpose basic cost-based regulation on a sector that has shown such structural competitive potential, despite its growing pains.

Makholm, Jeff D. (2017, December). Electricity Deregulation Under Siege II: Temptation of the Kleptocrats. Natural Gas & Electricity 34/05, ©2017 Wiley Periodicals, Inc., a Wiley company.