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30. For a brief summary of this approach, see Douglas Hous-

ton, "User-Ownership of Electric Transmission Grids: Toward

Resolving the Access Issue," Regulation, Winter 1992,

pp. 48-57.

31. Douglas Houston, "The Case for Deregulating Electric

Transmission: The Virtues of Self-Governance," Paper pre-

sented at the Cato Institute-Institute for Energy Research

Conference, "New Horizons in Electric Power Deregulation,"

Washington, March 2, 1995, p. 9.

Hold-up problems arise in investment situations in

which marginal costs are larger than average costs and thus

marginal-cost pricing will lead to bankruptcy.  Electric

transmission assets have such characteristics.  An electric

utility will not build transmission assets unless electrici-

ty users agree to pay for fixed costs above the actual

marginal costs of operating the transmission line.  Once the

line is built, however, the electricity user has incentive

only to pay marginal costs and the utility has incentive to

agree to the change because such fees are better than no

fees at all.  In such situations investment may not occur

unless the ex post "hold up" of investors by consumers can

be prevented.  Long-term contracts and vertical integration

are common solutions to "hold-up" situations.

32. Houston, "The Case for Deregulating Electric Transmis-

sion," p. 8.

33. User ownership is a common solution in other industries

faced with market-power bottleneck issues--for example, taxi

dispatch services cooperatively organized by independent

taxi operators, oil pipelines, natural-gas pipelines, and

large jointly owned shipping vessels.  Jerry Taylor, "Elec-

tric Utility Reform: Shock Therapy or Managed Competition?"

Regulation, Fall 1996, p. 68.  For example, the New England

Electric System plans a $200 million, 25-mile, 500-megawatt

cable beneath Long Island Sound, and will enlist the support

of expected users to aid in the permitting approval process.

Potential users who support the project will have preferen-

tial rights to claim access to the new capacity, as would be

expected.  Under a deregulatory regime not myopically fo-

cused on open access and payment of stranded costs, it is

likely that numerous independent power producers and their

customers would jointly finance many such projects.  "What

Natural Monopoly? NEES Unveils ITP to Serve Long Island,"

Electricity Daily, December 13, 1996, p. 1.