Turning On The Lights: Deregulating The Market for Electricity

Studies | Regulations

No. 228
Friday, October 01, 1999
by Vernon L. Smith and Stephen Rassenti


Conclusion

"If states took the divestiture route proposed here, most -- or even all -- of the stranded costs utilities claim would disappear."

Given the poor track record of regulation and the success of deregulation when applied to other industries or monopolies, policy makers should pare or repeal regulations establishing rates for electric generation or restricting entry into the generation business. This would allow the electric utility industry to quickly introduce new technologies, develop new services and devise new service delivery mechanisms. Deregulation initiatives should be adopted now, one at a time if necessary. At the federal level, repealing PURPA and the Public Utility Holding Company Act (PUHCA) and privatizing government-owned power facilities would be a good start. The states should follow the same path.

The time to substitute competition for regulation in the generation and delivery of electric power is now. Consumers will benefit if industry leaders and policy makers seize the moment. But the benefits will shrink and perhaps disappear if new legislation substitutes one regulatory regime for another. In return for swift and lasting deregulation and a market-based valuation of stranded assets, companies should restructure and join their customers in advocating choice in the provision of electricity. [See Appendix]


NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.


Read Article as PDF