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Page 6

Alternative Grids: An Antidote to Bottlenecks?

Proponents of mandatory access to the existing electricity grid do not believe that

new transmission grids parallel to the existing one will emerge because of the physical

barriers to entry as well as the existence of large economies of scale. Are alternative grids

physically possible?

Would-be competitors to existing long-distance electricity transmitters could

possibly use the rights-of-way of gas pipelines and railroads. In late 1996, for example,

Amtrak announced that it was looking for an energy partner to develop electricity

transmission capability on its right-of-way in the Northeast Corridor between Washington

and Boston.17 Would-be competitors with the existing local distribution network for

residential customers can conceivably use existing cable, telephone, water, and sewer

lines.

If the legal franchise prohibition on competition were eliminated, would actual

competition occur? In the few areas in the United States where retail competition exists,

two-firm duopolistic competition has been viable for quite some time.18 Thus, if entry

barriers to competition in distribution are removed, one likely development is the installa-

tion of competitive distribution lines by nonutilities into customers' homes and businesses

at the fringes of the grid. Joint ventures among commercial and residential real estate

developers, architects, power marketers, and power producers could emerge. If utilities

can connect from substations to new homes, other providers can certainly do the same.

Innovations in telecommunications could help foster competition on the grid. "The

same wires that carry power from the power plant to the house can carry data going the

other way," much as radio waves of differing frequencies share the same airspace.19 In

other words, the same copper wires that carry AC power to the lights and appliances at 60

cycles per second can also carry phone calls and digitized messages to turn appliances on

and off. "Suppliers at the top end of the grid make instantaneous offers to sell power;

your thermostat, fridge, and dryer decide minute by minute whether or not to buy."20

Even if distribution lines happened to be too expensive for a single new electric

firm to install, the fact that wires can perform "double duty" points to potential alliances

and joint ventures between utilities and independent power suppliers with partners in the

telecommunications industries. A high-price utility might find its customers buying

distribution from an independent power producer engaged in a venture with a phone or

cable company that monitored electricity use of appliances.

Network expansions in the telecommunications industry suggest that alternatives

to the existing electric grid will be built if entry is permitted. Frontier Corp. and Qwest

Communications are installing a $2 billion fiber optic network across the United States to

connect nearly 100 cities.21 Users of the network are supplying a large portion of the