Electricity Restructuring in the United States: Markets and Policy from the 1978 Energy Policy Act to the Present.

AuthorFelder, Frank A.

Electricity Restructuring in the United States: Markets and Policy from the 1978 Energy Policy Act to the Present, by STEVE ISSER, (Cambridge University Press, 2015), 509 pages. ISBN 9781107100787, Hardback.

From his extensive and detailed review of the history of U.S. electricity restructuring, Steve Isser, an economist and lawyer, concludes in his final paragraph:

Muddling through may not be the ideal solution for social engineers or academic economists, who draw up plans for optimal market and regulatory structures, then criticize politicians and special interests when the real world diverges from their vision. However, regulators and policymakers must deal with numerous vested interests, consumer advocates, environmentalists, politicians, corporate lobbyists, and other parties pursing their own vision of the ideal solution, engaging in turf wars or protecting their piece of the pie. While slicing the Gordian knot of political inertia is tempting, patiently unraveling its strands is often the better strategy. (1) The prime illustration of muddling through is the formation of the most successful type of U.S. electricity markets, although Dr. Isser has some important reservations regarding restructuring, based on the tight power pools and the numerous waves of reforms that Regional [tau]ransmission Organizations/Independent System Operators (RTOs/ISOs) have undergone. Dr. Isser also suggests that muddling through may often be the best strategy because it builds the human capital and the experimental base that is needed to design and implement electricity markets, as evidenced by the Federal Energy Regulatory Commission's (FERC) hit-or-miss approach over three decades of transitioning to electricity markets.

The muddling through thesis grows out of the book's approach of analyzing how the economic theory of network industries was applied to political positions, regulatory decision-making, market design, and implementation. Dr. Isser concludes that in the restructuring of the energy industry, economic theory is only one of the drivers, and perhaps not particularly important compared to exogenous shocks, path dependency, and adaptive policy instrumentalism.

In addition to the primary lesson of the value of instrumentalism, the book offers two additional lessons. The second lesson is that although there was a large amount of hype regarding the savings that restructuring would achieve, that hype may have been necessary to overcome the...

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