Is Power Industry Regulation Helping Crush the Life Out of America’s Economy?

Is the power industry one important instance of the Over-regulated America: the home of laissez-faire is being suffocated by excessive and badly written regulation, as The Economist documents in an article published on February 18th, 2012? Yes! As can be easily shown, the power industry is over-regulated. As a solution, The Economist suggests “A plea for simplicity,” identifying at the very end of the article “a real danger: that regulation may crush the life out of America’s economy.”

The origin of said over-regulation is that there is a huge mistake at the policy level architecture in EPAct 92 that has remained in place. Unless that critical mistake is addressed, it will be impossible to simplify the regulations. In order to introduce simplicity for the industry as a whole, one approach suggested is in the Electricity Without Price Controls Architecture Framework (EWPC-AF), whose summary read:

A new approach to power energy policy design, based on system’s architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.

It is easy to agree with The Economist that “… red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire… Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.”

Although the regulation of the power industry is excessive, I would no say it is badly written. Instead, I argue above that it is badly designed. The main design problem with smart grid policy comes from the architecting assumption that a system-of-systems will do. By itself, the idea of system-of-systems is fine. What is wrong with the approach taken is that the systems are the existing systems that have continuously disintegrated the regulations via incremental extensions. Instead, what are needed are the emerging systems of the power industry as a whole.