Arnold Kling is a Pepco customer. Pepco is one of the regulated electricity providers in Washington DC and surrounding area. He suggests that there may be a better way to deliver electricity to customers:
A recent storm in the Washington, D.C. area left many households without power for days. Customers served by one company, Pepco, appeared to suffer the worst. Pepco had the slowest rate of power restoration of all the area’s electricity suppliers.
As an economist and a Pepco customer, I am concerned by two factors that insulate Pepco from facing market discipline concerning reliability. The first is that Pepco is a regulated monopoly. The second is that there is no price indicating the benefits of reliability.
The fact that Pepco is a monopoly means that its incentive to improve its operations is limited. Regulators may cajole and threaten, but ultimately Pepco is like an employee with tenure — no matter how badly it performs, it can never be fired.
The fact that there is no market price for reliability makes matters even worse. The amount that Pepco invests in ensuring reliable provision of electricity does not have to bear any relationship whatsoever to the value that consumers place on reliability.
Update: Oops, forgot the hat-tip:
From Arnold Kling, a possible market approach to making DC habitable. Regulation ain't doin' the job. http://t.co/mAS7RcXk
— Colby Cosh (@colbycosh) July 7, 2012
