CEI Analysis: Right-of-Way to Deregulated Electricity

Regulation Policy

CEI Analysis: Right-of-Way to Deregulated Electricity

Current proposals in Congress and the states to restructure the electric power industry require heavy government regulation and perpetuate utility monopolies, warns analyst Clyde Wayne Crews Jr.

These proposals require "mandatory open access," which means local electric utilities would be forced to carry electric power produced by others -- such as industrial operations generating power as a sideline or utilities in other states. These producers would compete to sell electric power directly to businesses and homes, with the market more or less setting consumer prices.

But mandatory open access violates the property rights of utilities that own transmission lines, says Crews, and their competitors would have the edge, without the capital costs of building and maintaining the power system.

Determining "fair" charges for access, and what costs utility companies should be allowed to recoup, would have to be determined by federal and/or state regulators -- not the marketplace.

Local utilities would still be required to offer universal service -- which means stringing wires and offering electricity at below market rates to low-income and rural customers.

And consumers would not have the benefits of true competition, because local utilities would maintain their monopoly as the sole provider of electrical power transmission.

Instead, says Crews, laws that grant monopolies to local electric service utilities should be revoked. Competing companies could supply power to consumers by building power grids or negotiating contracts with existing utilities.

Competition in production and distribution already exists in Lubbock, Texas, and 22 other towns, says Crews. And cable, telecommunications, railroad and gas pipeline companies have the necessary rights-of-way and easements to build competing service lines.

Just the threat of entry by new or neighboring service companies would be enough to bring electric rates down, says Crews.

Source: Clyde Wayne Crews Jr. (Competitive Enterprise Institute), "Electric Utility Reform: The Free Market Alternative to Mandatory Open Access," Electricity Journal, December 1997.

For text http://www.cei.org/cpc/crewsonline.html

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