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BPEA Article

Regulatory Failure, Regulatory Reform, and Structural Change in the Electrical Power Industry

Paul L. Joskow


In the past decade the U.S. economy has gone through a virtual
revolution in economic deregulation. Complete or partial deregulation
of prices and market entry has increased the role of market forces in
allocating resources in industries as diverse as airlines, telecommunications,
natural gas production and transmission, and financial services.
But the electric power industry, at least on the surface, has been largely
unaffected. The industry is still subject to extensive price and entry
regulation by state and federal regulatory agencies and has not yet
experienced the dramatic structural changes that have followed deregulation
elsewhere. Nevertheless, several significant changes are taking place in the structure and regulation of the electric power industry. Most
important is the increasing role of competing suppliers of wholesale
power to utilities for resale, the resulting gradual deintegration of the
industry, and the regulatory changes promoting competition for future
supplies of generating capacity acquired by utilities for resale to residential,
commercial, and industrial customers.


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