Predictably, most of the proposals favor reregulation. Such plans would institute "open access" laws, requiring the established utilities to let all generators sell electricity over their transmission wires. Whereas past open access legislation, such as PURPA and EPAct, allowed generators to sell their electricity to other power suppliers, the new proposals would let generators sell their electricity directly to consumers.
Such plans require a huge new regulatory mechanism to ensure that the generating companies are being allowed to compete. Many of the proposals essentially call for regulators to take over existing transmission facilities and run them on a "fair and unbiased basis." Others call for "functional unbundling," which would make it illegal for vertically integrated firms to produce, transmit, and distribute electricity in one package.
Open access is supported by manufacturers, who would benefit--especially in the short run--from dropping prices. It is also popular with federal regulators, who fear that the transmission grid is still a natural monopoly and that vertically integrated utilities would have no incentive to let other firms use their wires. Alan Richardson of the American Public Power Association voiced this fear in his congressional testimony: "Competitive markets do not require heavy regulatory or antitrust scrutiny. But we do not now have an effective and efficient market in electricity. If Congress decides to remove all constraints on these dominant market participants, the market won't determine its future--the current monopolists will."
Another concern is that deregulation, by removing the government's overseers, would lead to lower reliability. Many fear that a deregulated industry would ignore rural customers.
Reregulation is understandably unpopular within the industry. The Edison Electric Institute, which represents the investor-owned utilities that own 75 percent of the transmission grid, naturally opposes any statute that would wrest control of the grid from its owners. Recognizing that some sort of federal legislation is coming, Edison has pursued a strategy of delaying the inevitable. Instead of arguing against open access legislation, Edison has suggested that broad reregulation decisions should be left to the states.
The American Public Power Association, representing the state-owned utilities that compete with Edison's constituency, agrees, though for different reasons: Although it supports open access, it is reluctant to let decision-making pass from state to federal regulators. Most state legislators and regulators concur, arguing that the federal government should simply make it easier for states to enact their own legislation. One way to do this to eliminate laws, such as the 1935 Public Utility Holding Company Act (PUHCA), that interfere with interstate trade.
But whither deregulation? The vested industry interests don't like it: They'd much rather keep the status quo and its guaranteed monopoly profits. Public-interest advocates don't want to risk releasing power to the monopolies built up by past legislation.
Even groups that generally favor less regulation, such as the Heritage Foundation, worry that, in the absence of government oversight, the owners of the transmission grid will stifle competition. Few in Washington like the idea of completely deregulating electricity.
But some do. Perhaps the most notable is Wayne Crews, an economist at the Competitive Enterprise Institute. Crews became a well-known player in the debate in 1998, when he put out a joke press release claiming that he had built a tiny generator on his desk and personally wanted access to the transmission grid. "The pervasive thinking among so-called reformers is that just because somebody spins magnets, they have a right of access to utility wires property," the press release announced. "Well, we're tired of fighting that idea. We want in on some of this money."
The prank communicated Crews' view that "the mere act of generating electricity does not create a right to force someone else to deliver it." According to Crews, what really hampers competition are the exclusive franchise rights the government gives to selected distributors. Abolishing those would open up the market and allow firms to innovate.
The deregulationists strongly dispute the idea that the transmission grid is a natural monopoly. Under deregulation, they argue, those who now own transmission wires would not monopolize the market. New entrants would build overlapping wires instead, allowing competition to thrive. After all, that's what happened in other industries with expensive transmission facilities, such as phone lines and railroad tracks.
Electricity, they add, is undergoing a sea change. Regulators assume that huge, centralized generators will always move power over vast distances to distributors, which will always transmit it to homes and businesses. Regulation has preserved this model, and reregulation would do the same. But in the least regulated corners of the market, innovators like Plug Power are developing technologies that would do away with the need for a transmission grid altogether.
According to RKS Research & Consulting, the industry is undergoing a "major shift from the model of central station plants and poles and wires to a new paradigm of small decentralized power and networked control systems. The shift could rival the change in computing from the mainframe to desktop and network server in social and economic significance." If this is so, reregulation would only get in the way.
Any bill that passes the House of Representatives will be a compromise. Whatever bill is passed will probably repeal both PUHCA and PURPA, standardize technical specifications, and allow tax-subsidized companies such as the co-ops to sell electricity on the national transmission grid. It's also likely to set up Regional Transmission Organizations, which would expand the feds' power over the transmission grid. A Senate bill being prepared by Frank Murkowski (R-Alaska) is expected to be significantly more deregulatory.
Since 1979, five major industries--trucking, long-distance telephone service, railroads, natural gas, and airlines--have been opened to some degree of competition. Most of them were at some time considered either natural monopolies or essential public services that could not be trusted to market forces. Most of the old regulations had been installed at the behest of the industries themselves, which saw them as a way to fend off competition. Before deregulation, all five industries suffered from stifled flexibility, soaring prices, and generally poorer service.
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