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There was a time prior to the year 1900 when electric power generation was privately own and essentially free from political regulation. The development of the electric light bulb and the electrically powered streetcar encouraged the development of large-scale electric power generation. At the time, large reciprocating steam piston engines were already well proven in marine and railway transportation while hydraulic river turbines were well proven at mills and factories located along rivers and streams. The engines and technologies were easily adapted to driving electrical generators.

When potential investors were convinced that there was potential to install viable hydraulic power generation at Niagara Falls to supply power to markets at New York City, the project went ahead. By 1890, incandescent electric lights lit up the night at NYC and horse-drawn streetcars and were converted to electric propulsion in many cities around the world. The electric power market at NYC was sufficiently large to cover the construction, maintenance and operating cost of the transmission lines between Niagara and NYC. Events that surrounded the development of electric power in New York State were repeated at many other locations around the world.

Many towns and villages located near and along the transmission line gained access to electric power "at the flick of a switch" and at comparatively lower costs, replacing windmills and little steam engines that had previously provided local electric and mechanical power. While the citizens and many industries in NYC benefited from the electric power, so did citizens and businesses at various towns and villages located along the transmission line. It was often viable to connect a branch line from the main transmission line to a large community located several miles away from the main line.

The accountants at the time calculated the cost of providing power to such communities and set the tariffs accordingly, to cover all costs and realize a certain percentage of profit. As a result, people living in different communities often paid different rates per kW/hr. In some small towns located far from a main transmission line or a power station, it was often considered viable to continue operating the local windmills and small steam engines that generated electrical and mechanical power. Some rural folks had grown up with candles and oil lamps and were quite content to continue the lifestyle they had long known.

To some degree, the scenario that occurred in New York State in regard to the introduction of electric power repeated in many other locations across the USA and internationally. There were disparities in power prices between larger and smaller population centers and sometimes within the same county, all calculated to ensure that all customers covered the cost of their electric power. The pricing disparities attracted political attention and especially so at election time, when political candidates began to challenge power companies over the disparities in power pricing. They had the power bills from the big towns to make their case and they promised low power prices to the electorate following their election to public office. So began the practice of political-economic regulation of the electric power market, to assure low prices.

Just as regulated intercity transportation companies were required to transfer a portion of their high earnings from their main routes to sustain the operation of many local and rural services, regulation allowed power companies to realize high earnings in the large centers and internally cross-subsidize rural electric power. The regulated rates for rural customers rarely covered the maintenance cost of the lines that carried the power. Regulation realized a political objective of providing low prices to voters in the outlying areas. The low prices were often well below the actual market prices for the particular location. Governments in a few other nations owned the power stations and used the printing presses at their central banks to "subsidize" the low cost of electric power for their citizens.

While regulation may be workable in an unchanging economy that is free from any technological change, technological advancement ultimately causes change in the world of business and in the economy at large. When the pace of technological advance is slow, there may be scope to revise economic regulations to adapt to the ongoing change or in some way accommodate it. Ongoing technological change has continually changed the world of business and can do so at a pace where economic regulation becomes detrimental to progress. While market de-regulation along with the closure of the regulatory agency would be desirable, the method by which governments dismantle the regulatory regime may have serious pitfalls.

When an industry that has been subject to decades of market regulation, that regulation determined the evolution of the industry and may have led to possible mal-investment or misallocation of resources. A sudden dismantling of the regime of market regulation would likely precipitate an economic upheaval as market forces endeavor to rectify decades of mal-investment imposed by the regulatory regime. Any attempt to deregulate electric power during a time of a shortage of electrical generating capacity could result in skyrocketing power prices in some regions, along with possible power shortages in other regions. Such would be the result of decades of regulation aimed at meeting the political objective of providing voters with low power prices.

While some analysts may claim that deregulation has failed, it is equally possible that economic regulation of the power industry for political purposes was unsuitable for the power industry. The short-term alleged success of market regulation would likely culminate in failure over the long term. It is also likely that the very concept of power regulation was flawed from the outset. It served a short-term political purpose and had the potential to develop into a political debacle over the long term, when it would call out for a solution, perhaps many decades later.

The nature of power regulation restricted the introduction of additional generating capacity because the regulators may not have deemed the addition of such "obsolete" capacity necessary. At some future time, a later political regime would have to bring about change to rectify the mistakes of the past, mistakes that were driven by a short-term political strategy. Such change may become necessary when economic pressure is imposed on a government during a period of economic downturn, as is now underway in the world. Such pressure may actually force many governments to seek ways by which to extricate government from the regime of economic regulation of various sectors of national and regional economies.

At the present time, the governments of Greece, Iceland, Ireland, Spain, Portugal and Italy have come to realize that there is limit on government spending. At such time, spendthrift governments have to tighten the national budget, reduce national expenditures and even discontinue economic regulation over various once sacred sectors of the economy. Some governments may have to do this in order to save national economies as they lay off massive numbers of public sector workers and transfer many services to a regulation-free private sector. Some 40% of the Greek workforce is on the public payroll while the USA increased public sector employment increased from 6.4-million in 1990 to 38.4-million in 2010.

As prevailing economic conditions compel governments to curtail expenses, they have no roadmap to guide them as to how to dismantle the regime of economic regulation of various sectors in the economy and terminate the regime of subsidies, including subsidized electric power. In the power sector, the prevailing economic reality may allow for no other choice than eventual power de-regulation along with the inevitable power shortages and/or skyrocketing power prices. The regime of cross subsidization of rural power has delayed for several decades, the emergence of viable decentralized power generation that otherwise could have supplied such markets. In Greece, future power prices may rise by over 1,000% as their government seeks ways by which to curtail spending.

Alternative Scenario:

It is possible that the power industry may have evolved very differently had political candidates of an earlier era respected private property rights and not sought to seek political gain by promising low-cost rural electric power. Market forces driven by the purchasing decisions of hundreds of thousands of customers would have guided the development and evolution of the early power industry from the outset. Small site and decentralized power generation actually existed around the time of WW1. Explosion-proof, coil mono-tube boilers generated steam for small steam engines of up to 100-Hp that drove electrical generators and a variety of machinery in mainly rural areas. A large number of small hydroelectric power dams actually generated power for rural markets in many smaller locations.

In a regulation-free environment, the development of rural electric power may have taken a very different path. The regime of economic regulation closed hundreds of small power stations and small hydro installations as governments pushed for larger, more centralized power generation that was easier to regulate. In a different economic regime, it is possible that small site power generation may have evolved continually over a period of decades from the 1930's era and resulted in the emergence of efficient, cost-competitive small-site power generation technology many years earlier.

It is likely that an absence of economic regulation may have discouraged nationalization of electric power in the UK during the 1950's and also in several other nations. Prior to 1965, electric power generation in Quebec was privately owned. As demand for power increased, it may have been possible for the private sector capital to have developed export-capacity hydroelectric power generation installations at various locations across Canada. Power nationalization and state subsidized development of mega projects ultimately serves to meet a political objective.

Conclusions:

The regime of economic regulation of many sectors of national economies is likely to collapse in many nations during the present economic downturn that may last for several more years. Power prices may again skyrocket and power shortages may be inevitable as market forces seek to correct and liquidate much of the mal-investment caused by decades of market regulation. The power industry of many nations may have been very different had the industry evolved in a market that would have been free from economic regulation. Consumers may have been spared the occurrence of skyrocketing power prices and power shortages that were part of the transformation from a regulated power market to a nominally de-regulated market. The economic reality may now deliver a totally de-regulated market regime to a few nations,