8
Electric Power From Monopoly to Effective Competition?

William G. Shepherd

Electricity is generated in large spinning equipment, transmitted over high-voltage lines to cities and factories, and then distributed locally over sets of wires to homes and businesses.

This three-level industry has long seemed to be merely the musty old utility sector, mainly just sending electrons through wires. For about a century, the United States has been a patchwork of local private utilities, each of them holding a government-backed monopoly for its area. These utilities are formally regulated by federal and state-level commissions, with varying strictness.

Since 1990 this industry has appeared to be moving from regulated monopoly toward a new era of open competition. The patchwork of some 170 utilities may dissolve into wider markets, perhaps even extending across whole regions and possibly containing intense competition. The business press glowingly touts large economic gains that may come. But instead, the competition may reduce costs and prices only moderately, perhaps by 10 or 20 percent. A typical family may gain only about $100 to $200 a year, at the most.

Worse still, even such modest benefits may not result. Some experts say that the markets won't widen very much, the competition will often be weak, costs and prices won't fall much, and most families will get no reductions in electric bills or will even suffer increases. The "new era" might turn sour, mainly freeing the monopolies from regulation's consumer-protecting rules. At any rate, millions of customers have become confused and anxious, fearful about having to make choices between the old monopoly firm and unknown, risky new suppliers.

Many of the utility monopolies have moved swiftly to hold on to their monopoly power. Many big mergers between utilities after 1990 reduced the scope for new competition, and a group of other proposed mergers (along with mergers that are yet to be proposed) would go further. Also, a number of big oil and natural-gas companies jumped into the merger game, many of them buying out major electric utilities. At the same time, but much more quietly, many of the electric companies have been cutting big discount deals with their largest industrial customers. That will lock those customers up for years, putting them out of reach for eager new competitors who may be trying to find customers.

Yet optimism may win. Monopoly-protecting actions might turn out to be futile in the end. The utilities themselves declare that the coming of

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