Fuel Poverty – Coming Soon to Wyoming

A quick look at price trends for goods and services reveals a head scratcher. While prices in the private sector tend to fall, prices in government-regulated industries, much like the cost of government itself, tend to rise.

Why might that be? Perhaps because in the private sector, the profit motive drives entrepreneurs to find ways such as technological advance to lower costs, and competition forces them to pass these cost savings on to consumers. Government and regulated industries, acting as monopoly providers without the disciplining force of competition and with virtually unlimited access to other people's money, face different incentives.

How does this theory play out in reality?

The computer industry provides us with an excellent private-sector example of a falling price trend. In 1984, the Mac 128k computer, sporting a nine inch black and white monitor, 128 k of RAM (memory), an eight megahertz processor speed and no hard drive, cost $2,495 (or $5,723.44, adjusted for inflation)[1]. This computer, incidentally, was the first to take floppy disks. A floppy disk, with a 1.2 megabyte storage capacity, cost $5 in 1984 (or $11.50, adjusted for inflation).

These days, an iMac with a 21.5-inch color screen, an eight-gigabyte RAM (memory), 2.7-gigahertz processor speed and a 500-gigabyte hard drive, costs $1,099. In other words, for less than half the price (or less than one-fifth, adjusted for inflation), a computer today has a color screen more than twice as large, 62,500 times more RAM, can process over 300 times as many operations per second, includes a hard drive with a storage capacity equivalent to more than 400,000 1984 floppy disks (which in 1984 would have cost an additional $2 million – over $4.6 million adjusted for inflation – in addition to the cost of the computer), plus many other improvements not listed here.

As a result, almost anyone who wants one can afford to buy a computer today.

The industries government regulates, such as public utilities, tell a different tale. Price trends in the public utility universe move in much the same way as the cost of government, generally up, instead of down like the private sector. Electricity, provided by public utilities to families, businesses and industries, is a good example.

Electricity sales in Wyoming have been relatively stable in recent years due to better insulation and more efficient windows in homes. People have been finding ways to reduce electricity consumption.

Why might that be? Perhaps because the cost of electricity is – wait for it – going up!

Between 2001 and 2012, residential electricity rates rose from 6.77 cents per kilowatt hour to 9.11 cents per kilowatt hour, a 35 percent increase (four percent, adjusted for inflation). Both commercial and industrial rate increases show a similar pattern.

Why have costs gone up?

When it comes to heavily regulated industries, improved technology does not translate to lower costs and the Environmental Protection Agency (EPA) is the big culprit. EPA regulations force technological advance to go into cleaning up old activities.

The latest target of an EPA clean up crusade is a colorless, odorless gas necessary for life emitted from existing power plants, such as coal-fired electricity plants.

This crusade will speed up the retirement of these plants before the end of their useful lives, driving up the cost of electricity to Wyoming families. According to the Energy Information Agency, the cost to build a new electricity generating plant doubled between 2000-2008.[2] In fact, in a June 2014 Regulatory Impact Analysis[3] done by the EPA, it admits that its regulations to limit man-made carbon dioxide, the above mentioned odorless colorless gas necessary for life, from existing power plants throughout the U.S. could have a compliance cost of between $4.2 to $7.4 billion each year to 2020, and even more after that.

Rising electricity costs may soon make electricity unaffordable and destine many Wyoming families to fuel poverty.

Imagine how much cheaper electricity might be today, and how much of your own money you would have in your pockets now and in the future, if electricity producers had worked in a competitive environment as Apple Computers did back in 1984.

It is time to recalibrate the electric industry by removing it from the political realm and making it once again responsive to the demands of consumers. It is time to deregulate electricity production and allow the free market to direct resources to their best use.

[1] http://www.bls.gov/data/inflation_calculator.htm

[2] http://www.eia.gov/oiaf/aeo/otheranalysis/aeo_2009analysispapers/epcc.html

[3] http://www2.epa.gov/sites/production/files/2014-06/documents/20140602ria-clean-power-plan.pdf