Regulation Policy

Heritage: Components Of Electricity Deregulation

Federal legislation to deregulate or restructure the electric industry should create a framework for nationwide competition among electric power generators and consumer choice in electric power service, says Adam Thierer of the Heritage Foundation. To do so, he says Congress should:

  • Eliminate as unconstitutional restraints of interstate commerce the exclusive geographic franchises granted by states, which is how electric power monopolies were created.

  • Require states to open their electricity markets by a date certain, or after a certain number of other states have acted, so that all the states are on a similar schedule.

  • Establish guidelines for interconnecting power grids nationwide, but allow the companies involved to voluntarily negotiate rules under which they access other companies' systems.

  • Privatize federal power companies -- the Tennessee Valley Authority and the Power Marketing Administrations -- and repeal the Energy Policy Act of 1992 and other laws regulating the industry.

Also, utilities claim that under federal and state mandates they invested $250 billion or more in uneconomic nuclear plants, coal-burning plants and renewable energy sources and would not be able to recover these so-called stranded costs at competitive electricity prices. But Thierer says the value of assets in most cases exceeds the depreciated or "book" value.

  • For instance, the New England Electric System recently sold generating assets to the U.S. Generating Company for $1.59 billion, or 45 percent more than book value.

  • And last fall, the California-based utility Edison International sold nine gas-fired plants with a book value of $421 million for $1.1 billion, or 2.65 times their book value.

Thierer says Congress should limit state bailouts of utilities for stranded costs or forbid the companies that receive them from selling electricity interstate.

Source: Adam D. Thierer, "A Five-Point Checklist for Successful Electricity Deregulation Legislation," Backgrounder No. 1169, April 13, 1998, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

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