BPEA | 1996: Microeconomics

Power Struggles: Explaining Deregulatory Reforms in Electricity Markets

discussants: Jerry A. Hausman and
Jerry A. Hausman Massachusetts Institute of Technology
Paul L. Joskow

Microeconomics 1996

SINCE PASSAGE of the Federal Power and Public Utilities Holding Company
Acts in 1935, the electric power industry has remained one of the
most tightly regulated sectors of the U.S. economy. Through lengthy
and litigious proceedings, state and federal regulatory commissions
adjudicate the prices, capital investments, financial structure, and corporate
organization of the 250 investor-owned electrical utilities that
principally operate as de jure or de facto franchise monopolies. After
more than a decade of deregulatory activity in other traditionally regulated
industries, similar policies are now being pursued for electricity.
Federal legislation in 1992 expanded competitive opportunities for
wholesale electricity producers, leaving states with the option to pursue
regulatory reform of retail electricity markets. Legislative and regulatory
policymakers in more than a dozen states are now considering
whether to deregulate prices and entry for retail electric power service;
the most aggressive states are pursuing policies to allow retail competition
to begin in 1998.