In Search of a Market to Improve Reliability in the U.S. Electricity Sector

Abstract

The U.S. electricity grid is facing serious reliability challenges. The standard vehicles for addressing any electricity issues are traditional monopoly utilities, RTOs, and government policy. This paper will propose a novel fourth vehicle to supplement the other three: a Special Economic Subsector for electricity. The Special Economic Subsector is loosely based on China’s Special Economic Zones which, through the establishment of liberal economic policies, were partly responsible for that country’s spectacular economic transformation. The Special Economic Subsector for U.S. electricity would similarly establish liberal economic policies for a new segment of the industry in which entrepreneurs would be free to innovate and charge market prices while being guided by customer feedback rather than government regulation and policy. History shows that a customer driven segment would be more likely to increase innovation and efficiency while responding quickly to ever-changing market conditions. This proposal should have broad appeal to those who recognize the reliability challenges of the electricity sector, are concerned about rising costs, and don’t wish to keep using taxpayer money to address these problems. The paper concludes by proposing a wider dialogue around a Special Economic Subsector because the reliability challenges to the grid demand a strong injection of liberal market policies.