It is an article of faith among a large and vocal set of opinion makers that deregulation and private sector companies deliver infrastructure services of better quality and at a lower price than public operators.
This is despite the realms of evidence to the contrary from across the world on sectors ranging from utilities to transportation. There is no empirical evidence to suggest that the private sector is innately superior to the public sector in delivering infrastructure services. This has reference to several examples and global research in this regard.
The latest evidence comes from the recent electricity blackouts in Texas, even as the state was reeling from a cold wave. A WSJ investigation has this to say,
Texas’s deregulated electricity market, which was supposed to provide reliable power at a lower price, left millions in the dark last week. For two decades, its customers have paid more for electricity than state residents who are served by traditional utilities... Nearly 20 years ago, Texas shifted from using full-service regulated utilities to generate power and deliver it to consumers. The state deregulated power generation, creating the system that failed last week. And it required nearly 60% of consumers to buy their electricity from one of many retail power companies, rather than a local utility.
Those deregulated Texas residential consumers paid $28 billion more for their power since 2004 than they would have paid at the rates charged to the customers of the state’s traditional utilities, according to the Journal’s analysis of data from the federal Energy Information Administration... Power prices surged to the market price cap of $9,000 a megawatt hour for several days during the crisis, a feature of the state’s system designed to incentivize power plants to supply more juice. Some consumers who chose variable rate power plans from retail power companies are seeing the big bills.
None of this was supposed to happen under deregulation. Backers of competition in the electricity-supply business promised it would lower prices for consumers who could shop around for the best deals, just as they do for cellphone service. The system would be an improvement over monopoly utilities, which have little incentive to innovate and provide better service to customers, supporters of deregulation said... From 2004 through 2019, the annual rate for electricity from Texas’s traditional utilities was 8% lower, on average, than the nationwide average rate, while the rates of retail providers averaged 13% higher than the nationwide rate.
Even as markets are deregulated, there is a strong case for retaining some public sector presence, if only to keep the markets honest.
In other states that allow retail competition for electricity, customers have the option of getting their power from a regulated utility. The absence of an incumbent utility in parts of Texas that allow retail competition makes it difficult for consumers to know if they are paying too much for power.
Private provisioning generates incentive distortions which are not easily addressed.
For power generators, the laissez-faire market design rewarded companies that could sell electricity inexpensively and still recover their capital costs. But it provided little incentive for companies to spend cash on infrastructure that could protect power plants during sporadic severe cold snaps.
This is only the latest exhibit in the reality of private participation in infrastructure sector.
No comments:
Post a Comment