Deregulation Coming at Last in Electric Power

May/​June 1995 • Policy Report

Leading economists and regulators assembled for a wide‐​ranging discussion of the growing momentum toward deregulation of electric power at “New Horizons in Electric Power Deregulation,” a conference cosponsored March 2 by Cato and the Houston‐​based Institute for Energy Research (IER). One of the high points of the conference was the luncheon speech by Daniel Fessler, president of the California Public Utilities Commission. Calling for a “Contract for a Federalist Future,” Fessler declared that the Ninth and Tenth Amendments to the U.S. Constitution are perhaps the most important bulwarks of liberty in the Constitution and indicated the growing seriousness of the state challenge to federal excess.

IER president Robert L. Bradley Jr. set the tone of the conference by arguing that the regulatory regime was not a response to monopolistic behavior during the free‐​market era but rather the result of protectionist lobbying by the industry. Jerry Ellig of George Mason University noted that the experiences of other “network” industries that have undergone deregulation — natural gas, railroads, telecommunication, airlines, and trucking — indicate that substantial deregulation of electricity is not only possible but vitally necessary to unleash the industry’s full economic potential.

Richard Gordon, director of the Center for Energy and Mineral Policy Research at Pennsylvania State University, declared that “demands for specific industry reorganization proposals as a precondition for reform effectively seek to sabotage change. Trusting the regulators to redesign [the electric utility industry],” he added, “will perpetuate past errors. We should move the regulators aside and let the experiments begin.” Robert Michaels of California State University at Fullerton warned that Gordon’s fears are coming true in his state, where “deregulation” means a centralized electricity pool to which all power generated must go and from which it must be dispatched to electric utilities.

Other participants included Douglas Houston of the University of Kansas; Richard O’Neill, senior economist at the Federal Energy Regulatory Commission; Manuel Alvarez, principal adviser to the head commissioner of the California Energy Commission; Russell Klepper of Rawson, Klepper and Co.; John Kelly of the American Public Power Association; Patricia Herman of Barakat and Chamberlin; and Roy Cordato of Campbell University.