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The superior deregulatory option is to get rid of the exclusive franchises that are
the actual source of today's utility monopoly power and allow competition to emerge
spontaneously. If no franchises exist, competition will appear in the form of alternative
transmission and distribution, distributed generation and microgeneration, strategic
business alliances spurred by newly available technologies that make it possible to control
electron flows on the grid, sale of federal grid assets, and user ownership of the grid. The
essence of reform is straightforward: give others every right to set up shop, but let them
worry about how they get their juice to the customer.
By avoiding open-access deregulation, Americans avoid the political failures of
maintaining a regulatory structure, the losses that will emerge from the conceit that
regulation prices output better than an "imperfect" market, inevitable legal challenges, the
debate over maintaining reliability, the state-federal jurisdictional conflict, and the
stranded-cost debate.
We are far better off taking our chances with the occasional exercise of potential
monopoly power in transmission than submitting to a guaranteed monopoly in the form of
an ISO doing the bidding of regulators. The monopoly effects would have to be very
large to make regulation a rational approach. To the extent both the regulatory commu-
nity and trade groups disband after restructuring, this reform effort will have succeeded.
Notes
1. Peter VanDoren, "The Deregulation of the Electricity
Industry: A Primer," Cato Institute Policy Analysis, forth-
coming.
2. Michael Maloney and Robert McCormick, "Customer Choice,
Consumer Value: An Analysis of Retail Competition in Ameri-
ca's Electricity Industry," Citizens for a Sound Economy
Foundation, Washington, 1996, p. 10.
3. Phillip Cross, "PUCs in 1997: Managing the Competition?"
Public Utilities Fortnightly, January 1, 1998, p. 50.
4. For an overview, see Congressional Research Service,
Energy and Natural Resources Policy Division, "Electricity:
The Road toward Restructuring," updated February 21, 1996.
5. See, for example, Robert Michaels, "Stranded in Sacra-
mento," Regulation, Spring 1997, pp. 52-64. Along with
California, Rhode Island and New Hampshire will implement
open access in 1998. Pennsylvania and Maine will have
direct access in 1999. Peter Kendall and Christi Parsons,