<<  <  >  >>

Page 11

would finance its own hardware and might need to fund an upgrade of the transmission

assets in question, because, for example, transmission towers have been designed to hold

wire weight and ice buildup but they have obvious limitations with regard to weight and

the ability to withstand crosswinds. Utilities may voluntarily undertake joint ventures to

share costs of capacity expansion, or the "invading" utility may be required to finance

tower reinforcement and lines.

So, as a last resort, residual rapaciousness can be tempered by the fact that rights-

of-way were granted to serve the public rather than the utility. Others should be allowed

to further develop those rights-of-way, if necessary. Even if access to utilities' rights-of-

way is sometimes ordered, that approach is very different from mandatory open access as

envisioned today: utilities still must be allowed to charge market rates or exclude use of

their own wires. The attachment of new wires should be accompanied by a fee.

Contestability: The Ghost in the Monopoly Machine

Traditionally, economists believed that the existence of actual competition was

necessary for consumers to receive the benefits of lower prices and better quality service.

Recent developments in economic theory, however, suggest that potential competition

alone may be sufficient.42 The mere threat of competition, under the right circumstances,

will induce incumbent firms to price as if competition actually exists. The effectiveness of

potential competition varies with the ease of entry and the specificity of assets used in the

industry.43 Costly entry or exit and assets that are difficult to switch to alternative uses

make potential competition less effective in disciplining the pricing behavior of an

incumbent monopolist.

The existence of alternative rights-of-way makes entry into electricity transmission

possible. If bankruptcy occurs, however, exit from electricity transmission is very difficult

because of the specificity and immovability of the assets. Poles and wires are difficult to

use for other purposes and cannot be moved easily. In electricity transmission, potential

competition is not a perfect substitute for actual competition, but the former would

constrain to some degree the pricing behavior of incumbent utilities.44 Any utility that

restricts access to its wires in a nonfranchise marketplace will likely face retaliation if it at-

tempts to expand geographically. Such dynamics will induce competition without either

forced access or parallel wire construction.

Full Deregulation and the Myth of Consumer Vulnerability

Some critics fear that the removal of all special regulatory controls over the

delivery and sale of electricity (essentially treating electric power companies no differently

than, say, shoe stores) would hurt consumers. Without rate regulation, they argue, prices