Clyde Wayne Crews, Jr. is tlze F~llozo in Regulatory Studies at the

Competitive Enterprise Institute in Washington, D.C. Crews previously

served as a legislative aide in the

United States Senate, as an economist at the Food and Drug Administration and at Citizens for a Sound Economy Foundation. He is a Ph.D. student in

economics at George Mason University’s Centerfor the Study of Public Choice, and holds an M.B.A.

from the College of William and Mary.

Stand-Alone PUHCA Repeal in the 104th Congress: We Can Do Better

PUHCA repeal might afford some added eficiencies in provision of electricity service, but a far moye important issue-which should be a sine qua non for repeal-is that of direct customer access and choice in the marketplace. Direct access should be the price of repeal.

Clyde Wmpe C~T~OS, jr.

T his article analyzes the impact

of repealing the Public Utility

Holding Company Act (PUHCA),

a subject on which the U.S. House

of Representatives held hearings

in 1995 and which is set for its

agenda in 1996.

The Securities and Exchange

Commission has proposed a pol-

icy answer for the debates about

the future of holding companies

in its June 1995 report, “The Regu-

lation of Public Utility Holding

Companies.“’ But the SEC’s re-

port is seriously flawed, because

it fails to view the electricity in-

dustry in light of the coming com-

petition at the consumer level.

The insight it lacks-that society

no longer needs to rely on monop-

oly providers of electricity at the

customer level-is crucial.

The power industry that the

SEC proposes to free from the con-

straints of PUHCA is, of course,

still a full-fledged monopoly at

the local customer level. The rate-

payer, with rare exceptions, still

faces only one supplier of electric-

ity, and cannot change suppliers

as he might do with long distance

telephone service. Direct access

for electricity customers is now

technically feasible, but has gener-

ally been made impossible by

regulation. As direct access is im-

plemented, it would be possible

to remove PUHCA’s constraints

on the ownership and structure of

utilities. But if the SEC’s plan to

46 The Electricity Journal

abolish PUHCA were enacted in

isolation from customer choice

this would most likely strengthen

utility monopolies and delay the

arrival of customer choice. The

firms subject to PUHCA regula-

tion are not competitive firms sub-

ject to market discipline but pub-

lic/private hybrids, one step

removed from bureaucracies.

T he SEC’s proposed repeal of

PUHCA is not conditioned

on opening of utility markets to

direct access by customers, but on

the principle of “disclosure’‘-a

theme that runs throughout its re-

port. While direct access is an is-

sue that is separate from disclo-

sure, it may be advisable to

consider both matters simultane-

ously. According to the SEC, utili-

ties ought to enjoy an end to the

constraints imposed by the Hold-

ing Company Act, subject only to

opening their books to regulators.

Indeed, the SEC report seems al-

most to have been written in igno-

rance of the one condition that

might warrant PUHCA repeal:

the possibility of utilities giving

up their monopoly over provision

of electricity to final users. The re-

port is written as if the current in-

dustry structure of vertically inte-

grated utility monopolies was a

given, not open to serious debate.

The SEC report might be unas-

sailable if it had first been con-

cluded, as a matter of public pol-

icy, that monopoly provision of

electricity was the final and

proper form of the marketplace,

and the task was merely to

streamline the existing vertically

integrated utility monopoly struc-

ture and ensure that it captures all

existing economies. But that is not

the situation. The SEC’s concerns

about “efficiency” in utility struc-

ture are overly simplistic because

they ignore the fundamental inef-

ficiency of perpetuating the retail

monopoly that vertically inte-

grated utilities enjoy.

I. Repeal PUHCA, If . . .

PUHCA should be repealed,

and this writer supports the SEC’s

“strong form” of unconditional re-

peal. But it makes even more

sense to eliminate utilities’ mo-

The SEC zport seems almost to have been writ ten in ignorance of the one condition that might warrant PUHCA repeal.

nopoly status before or in conjunc-

tion with PUHCA repeal. Given a

competitive marketplace in elec-

tricity, one could go even further

than the SEC proposes. The SEC

proposal entrusts post-PUHCA

oversight to the Federal Energy

Regulatory Commission and to

the states. With direct customer

choice and access, however, there

will be far less need for such intru-

sive SEC and state monitoring of

books, especially as market

mechanisms replace regulatory

protections of small and captive

ratepayers who might have been

at the most risk from unwise util-

ity diversification. As competition

brings down prices and as utility

customers become more in-

formed over the coming months

and years, regulators will be less

likely to allow the costs of failed

nonutility business ventures to be

recovered in the rate base. Indeed,

in the long run there may be no

need even for EERC if transmis-

sion proves to be ‘contestable’

(that is, if utilities behave as if

they had competitors), or if rules

are implemented whereby parties

other than the existing utility are

permitted to add transmission

and capacity to the grid. Competi-

tors might, for example, add ca-

pacity either along the existing

utility rights of way or along

other public rights of way such as

streets and railroad lines.

T he goal of deregulation

should be to reach a point

at which the freedoms and obliga-

tions of utilities resemble those of

other business enterprises. After

PUHCA repeal and the introduc-

tion of competition, utilities

should be able to enter all those

fields where their expertise and

assets promise advantages to cus-

tomers and profits to sharehold-

ers, such as telecommunications.

Consistent with this approach,

utilities should no longer be re-

quired to assume the risk prop-

erly borne by those who bypass,

by being obligated as “providers

of last resort.”

The goal ought to be to elimi-

nate the need for such bureau-

cratic oversight in favor of “regu-

lating” utilities through vibrant

competition at the generation and

even the transmission and distri-

@nmy/Februa7y 1996 47

bution levels. In addition to the

threat of construction of new ca-

pacity by competitors, a highly de-

veloped wheeling environment

may in itself prevent gouging in

transmission. Presumably, the

very utilities that may attempt to

gouge on transmission of power

occasionally require the transmis-

sion services of others. Gouging

may be counterproductive if it

leads to widespread retaliation.

Regulators should give the mar-

ketplace a chance to correct this

problem before imposing tight

rules at the outset.

But the fundamental question is

straightforward: Does it make

sense for monopoly utilities sud-

denly to enjoy a massive expan-

sion of access to customers over

monopolized transmission lines

while non-utility power gener-

ators remain shut out, and while

the final customer is denied direct

access over those same semi-pub-

lic rights of way? Noting the inset

box (next page) on gains from ac-

cess, this article discusses why

“competition first” may be the

best policy

II. Abolishing PUHCA Before De-Monopolizing Would Harm Consumers

Under vigorous competition,

power producers would be regu-

lated not by government but by

competitors and customers. The

typical way a customer “regu-

lates” a product is through refusal

to purchase and switching to ri-

vals. But exclusive franchises at

the retail level mean that electric-

ity customers are legally captive,

leaving government regulation as

the only control on abuse of mo-

nopoly power, however poor a

substitute for rivalry it may be.

The proper step to take at this

point in “deregulatory history” is

not to strengthen the existing mo-

nopolies through stand-alone

PUHCA repeal, but to eliminate

monopoly franchises.

The utilities’ own numbers out-

lining so-called “stranded costs”

they believe themselves to be “en-

titled” to recover during a deregu-

latory transition indicate that

eliminating PUHCA unilaterally

should give consumers some

cause for concern. Regardless of

the very real inefficiencies that

PUHCA imposes on registered

holding companies, removing the

controls that PUHCA currently

imposes before the monopoly is

eliminated may invite inefficien-

cies of its own. The effects of pre-

mature repeal could include de-

laying the efficiencies of retail

wheeling, enhancing market vi-

ability of monopoly utilities rela-

tive to non-utility generators, and

weakening consumers’ defense

against the imposition of stranded

costs, by increasing through pre-

mature diversification the num-

ber of utilities and non-utilities

with a financial stake in stranded

cost recovery. In the absence of

monopoly power, the SEC recom-

mendations are more than justi-

fied, as are further freedoms for

utilities to enhance their opera-

tions and market positions.

III. The Inefficiencies of Not Having Retail Competition Exceed PUHCA’s Inefficiencies

None of the very legitimate in-

efficiencies uncovered by the SEC

report can exceed those caused by

the lack of direct customer access.

A Ne7o York Times article high-

lighted the plight of an inde-

pendent power producer who sits

“the distance he can drive a golf

ball” from the site of numerous

chemical and oil refineries, “most

of which would gladly buy the

cheap power [his] plant pro-

duces.“’ Yet he can’t sell power to

them over the existing rights of

way. Neither can “the utility next

door.” Hundreds of small power

producers are in similar straits.

Repealing PUHCA, a federal ac-

tion, would have the effect of di-

rectly increasing the political and

market power of utilities as hold-

ers of state monopoly franchises

(as will be examined). Unilateral

repeal of PUHCA might well de-

lay the day when non-utility

power producers and competitive

utilities as well have the right to

sell directly to anyone who wants

their cheaper power. This is espe-

cially true if FERC assumes juris-

diction over interstate sales, yet re-

mains pro-utility on strandings.

It’s generally a bad idea to mix

monopoly cost-plus regulation

with laissez-faire, which a stand-

48 2% Electricity Journal

I

Customer Gains from Direct Access

Wider Access and Customer Choice. Americans will save billions

of dollars annually when direct customer choice in electricity be

comes a reality. The electricity industry has sales of $198 billion per

year. The average price of electricity in the country across all user

sectors (residential, commercial, industrial and other) is now 6.93

cents per kilowatt-hour (kWh), but that price varies tremendously

across regions within each sector (Table l).'

Economist Robert J. Michaels put it simply to the WallStreetJoumal:

“ratepayers have been buying overpriced electricity.” Aone-cent per

kilowatt-hour drop in the average electricity cost of about 7 cents

translates into a savings to residential and industrial customers of

$28 billion per year. One study concludes savings to consumers

could reach $80 billion per year if utility monopoly powers were

removed--a gigantic figure relative to the annual sales of the indus-

try.3 Despite these overpayments by consumers, utilities expect

consumers to pay them for uneconomic plants, the source of the

so-called “stranded costs.”

The wide-ranging disparities between the highest and lowest re

gional cost in each sector point to extraordinary embedded inefficien-

cies. As these price differences across regions illustrate, competitive

purchase of electricity by the various economic sectors promises

tremendous economic savings. Bypassing the high-cost local utility

company in favor of direct access to power generators located in

another state or region-or perhaps even the same state-can save

customers billions of dollars and compel electricity producers to offer

the lowest prices possible to stay competitive or leave the industry.

New generators for peaking can produce power at $.03 per kWh and

under, so it’s no wonder that non-utility generators and customers

are telling utilities, “Thanks just the same, but we can twirl our own

magnets-we just need access to the public rights of way.”

Customer choice is not just a matter of saving money. Under direct

access, those concerned about the environment will be free to

purchase power from any source of their choosing, whether solar,

wind, geothermal, biomass, or other. People will also likely be drawn

to utilities that offer services to complement electricity provision.

Direct access and a right to compete with conventional energy

sources has the potential to make these sources and services increasingly competitive, but to the extent that they do cost more the

premium should not be hidden from ratepayers.

Taxpayer Savings. Private customers aren’t the only beneficiaries

of electricity competition. Taxpayers stand to save a bundle as well.

Allowing federal agencies that purchase electricity-particularly the

defense department-to bypass the local utility and purchase elec-

tricity from the lowest-cost provider could save taxpayers hundreds

of millions annually. According to the House committee report accom

panying the 1996 Defense Authorization bill, the Department of

Defense spends $2 billion per year on electricity, and could save

about 20 percent through competitive procurement and manage

ment efficiencies4 That amounts to roughly $400 million annually, or

$2 billion in taxpayer savings over five years, the typical federal

budget planning horizon.

The FY 1995 Labor/HHS appropriation included $1.319 billion for the

Low-Income Home Energy Assistance Program (LIHEAP). These

dollars go to various ends: about 60 percent of funds for heating

costs, 1 percent for home cooling, 12 percent for crisis aid, 12

percent for home weatherization, and about 10 percent for admini-

stration The dramatic decreases in electricity prices that competi-

tion will bring can mean a significant decrease in the need for the

portion of LIHEAP that funds electricity subsidies.

Notes:

1. These figures are drawn from the Energy lnforrnation Administration; Dffice of Coal, Nu

clear, Electric, and Ahemate Fuels, Electric Power Annual 1993 55 (DOEIEIA-4348(93),

Dec. 1994).

2. Jeff Bailey, PURPA Power; Carter Era Law Keeps Rice of Ektricify Up in Spite of a

Surplus, WALL STREET BURNAL. May 17,1995.

3. Tabors, Caramanis & Associates, Unbundling the US. Electric Power Industry: ABlue

print for Change (March 1995).

4. US. House of Representatives, H. Rept. 104-131 to accompany HR. 1530 156 (104th Cong., 1st Sess., 1995).

5. Joe Richardson, The Low-Income Home Energy Assistance Program: A Fact Sheet

(Cong. Res. Serv. Rept. for Congress, Document 94-211 EPW, updated April 11,1995).

Table 1: Average 1993 Revenue per Kilowatt-Hour By Sector and Census Division

All Sectors Residential Commercial Industrial Other

U.S. Average 6.93 8.32 7.74 4.85 6.74

Highest regional cost” 10.01 11.34 10.15 8.26 12.66

Lowest regional cost 6.04 7.27 6.31 4.16 4.63

Difference 3.97 4.07 3.84 4.10 8.03

a. Includes contiguous states only Source: Energy Information Agency, Electric Power Annual, 1993

I

Janus y/FeDrua y 1996

I

49

alone relaxation of restraints on

non-utility ownership would do.

Some argue that combining the

unregulated entity with the regu-

lated utility could lead to impos-

ing losses on ratepayers, who

could find some of those costs on

their power bills unless regula-

tory efforts prevented it.3 As com-

petition heats up though, and as

consumers become more savvy,

state regulators may be less in-

clined to allow inclusion of poor

ventures in the post-PUHCA rate

base.

IV. Unilateral Lifting of PUHCA’s Limits on Expansion into Non-Contiguous States Ignores Realities of Retail Wheeling

The SEC is correct that many of

the functions governed by

PUHCA are duplicated at the

state level in some states and by

general SEC requirements. How-

ever, buried deep in its report, the

Commission touches on the heart

of the matter: “One aspect of the

Holding Company Act that is JKJ~

duplicated by other regulatory re-

gimes is the integration require-

ment of section 11. This provision

has been interpreted to prohibit a

domestic holding company from

owning utility companies in dis-

tant states/I4 (emphasis in origi-

nal). Yet despite the absence of

oversight of monopoly interstate

expansion without PUHCA, the

commission is not alarmed. Its re-

port states:

Today, however, efficiency con- siderations may argue in favor of allowing holding companies to own utilities in non-contiguous

states. Consumers in different states often have different de- mands for energy, and a com- pany servicing several states may make more efficient use of its gen- eration and transmission facilities. Also, there are often significant administrative cost savings from utility mergers, savings that have little to do with whether the utili- ties serve contiguous areas5

It’s impossible to say what would be valid

economies of scale without PUHCA,

since utilities operate free of th e market com-

petition necessary for determining proper

allocation of resources.

These concerns ring true but are

perhaps beside the point. In fact,

this proclamation reinforces the

impression that the SEC prepared

its report in a vacuum, failing to

appreciate the significance of the

rise of small, independent power

producers, the nascent but grow-

ing willingness of utilities to com-

pete with one another and the

technical capability for direct

choice of power supplier. It is un-

doubtedly true, as the SEC holds,

that “the current regulatory sys-

tem imposes significant costs, in

direct administrative charges and

foregone economies of scale and

scope, that often cannot be justi-

fied in terms of benefits to utility

investors.“6 But it’s also true that

it’s impossible to say what would

be valid economies of scale and

scope without PUHCA, since utili-

ties are state monopolies that

operate under cost-of-service

regulation, free of the market com-

petition necessary for determin-

ing the proper allocation of en-

ergy resources. Fostering

expansion of the current cost-

based utility empire while con-

tinuing to bar retail access and a

competitive grid will create some-

thing, but it won’t be an industry

that maximizes the genuine scale

and scope economies that exist.

V. Lifting PUHCA’s Limits on Diversification into Non- Utility Businesses Ignores Realities of Retail Wheeling

PUHCA limits holding compa-

nies’ expansion into non-utility

businesses and diversification of

non-utility businesses into utility

companies. Like PUHCA’s limita-

tions on acquisition of non-con-

tiguous utilities, there are indeed

inefficiencies of keeping non-ex-

empt holding companies out of

these businesses-especially

while exempt electric utilities and

other firms aren’t subject to this

restriction. The report states:

There may be many companies involved in manufacturing, en- ergy, fiance, telecommunica- tions or other businesses that would be interested in diversify- ing into the utility industry. . . To the extent that the Holding Com- pany Act discourages such acqui- sitions, the market cannot test whether such acquisitions would

_

50 The Electricity Journal

be sensible or profitable. In this regard, the Act is inconsistent with the carefully neutral atti- tude towards takeovers that Con- gress adopted in the 1975 amend- ments to the Exchange Act.7

Again, this is true as far as it

goes, but it is cut off from the real-

ity of the incipient competitive re-

tail market. Repealing PUHCA

only goes part way toward allow-

ing a “market test,” which re-

quires competition rather than

cost-based regulation. The quote

above mentions diversification of

manufacturing and energy firms,

but what of the economies to be

gained from allowing these very

firms to co-generate and pipe elec-

tricity into neighboring industrial

and commercial zones or to resi-

dential users? Such efficiencies

are overlooked. Moreover, creat-

ing a flurry of holding companies

out of companies that now are not

primarily in the electricity busi-

ness could give many more par-

ties a stake in delaying the arrival

of competition and in recovering

stranded costs. Abolishing

PUHCA and increasing the num-

bers of non-utility firms with a

bottom-line stake in utility profit-

ability before competition arrives

might give those non-utility firms

a higher stake in securing

stranded costs at the expense of

ratepayers.

the amounts that can be dissi-

pated by the so-called “stranded

cost” recovery that utilities de-

mand as a precondition of compe-

tition. Stranded costs are the

amounts utilities have invested in

power-generating facilities that

will be rendered useless with the

advent of competition in electric-

ity, since “much of the existing in-

vestment in electrical power-n

everything from bread-and-butter

coal and nuclear plants to exotic

If utilities succeed in imposing thefull stranded costs & their cus tomevs, many of the benefits of com- petition will not materialize.

to expend funds that they would

not otherwise have done.’ Under-

takings for which approval was

secured but not mandated would

not count under this criterion. For

various reasons, it seems proper

that utility investors, not captive

ratepayers, should shoulder the

burden of stranded costs. The pri-

mary historical justification of eco-

nomic regulation has been to pro-

tect customers from monopoly,

not the other way around. Now,

in this awkward reversal that

turns the very purpose of regula-

tion on its head, protection from

their customers is exactly what

most electric utility monopolies

are now asking.

I f utilities succeed in imposing

the full stranded costs on

VI. PUHCA Repeal Could Increase Utilities’ Hand in Recovering Stranded Costs at the Expense of Customers

The amounts Americans can

save with direct access to electric-

ity are in a sense the flip side of

windmill farms . . . is more expen-

sive than the cost of starting over

with a clean sheet of paper.“8

Some stranded cost estimates, pri-

marily from utilities, exceed $200

billion; they are the single greatest

barrier in the way of direct cus-

tomer access to enjoy the full

fruits of competition that the rate

disparity chart in the inset box in-

dicates are there to be had.

While the justifications are prop-

erly the subject of a separate de-

bate, this writer has argued

against the recovery of stranded

costs by utilities, except in the rare

case that utilities were compelled

their customers, many of the bene-

fits of competition will not materi-

alize. Customers will choose not

to press for independence if the

cost of freedom from captivity is

too high. Under this condition,

utilities will recover all their

above market costs and put them

in shareholders’ pockets. Allow-

ing utilities to recover their

stranded costs will also prolong

the life of certain less efficient

power plants that perhaps ought

to be retired.

The higher the stranded costs

imposed on customers, the less

the general public can gain from

competition. However, as econo-

mist Robert Michaels points out,

utilities have not identified spe-

cific assets they claim are

stranded, probably for strategic

reasons. Numbers as high as $300

billion reveal that utilities are not

asking so much for stranded asset

cost recovery as for reuelzue recov-

ery.” Lower estimates of stranded

costs, about $24 billion, have been

made by industrial consumers

and others that wish to bypass the

local monopoly without paying

for strandings.”

The stranded cost issue distorts

the parameters of the debate over

PUHCA repeal. There are at bot-

tom two ways in which PUHCA

repeal, if it is not accompanied by

opening up of the power grid to

competition, might tilt the play-

ing field against ratepayers. The

SEC’s proposal has apparently

not considered this point.

I n so-called “public choice”

economic theory, organized

groups who stand to gain from a

particular political outcome will

pour resources into lobbying up

to the amount of the expected

gain. Politicians (and regulators)

are modeled as brokers in a

wealth transfer from consumers

to the regulated party. Unorgan-

ized consumers do not rebel be-

cause, in simple terms, it costs

them more than one dollar to or-

ganize to prevent having a dollar

taken away.” Benefits of regula-

tion are concentrated on produc-

ers (utilities) while costs are dis-

persed among consumers and

potential competitors. Stranded

costs partly fit this model: Utilities

stand to gain tremendously from

stranded cost recovery, and regu-

lators have offered tentative ap-

proval. Consumers, barely aware

of the issue as yet, have little

means of resistance (but they

could be rallied because the

amounts are so large that it could

become worthwhile).

52

Since FERC will assume juris-

diction over interstate wholesale

transactions-where it supports

stranded cost recovery-it will

likely assume jurisdiction over in-

terstate retail transactions as well,

with the same pro-stranding senti-

ment. Precedent set at this early

stage of deregulation matters a

lot. With unilateral PUHCA re-

peal, utilities and holding compa-

nies fighting for strandings in

their own region will be better

able to carry the battle over to

neighboring states because of an

expanded presence and because

PUHCA’s prohibition on cam-

paign contributions would have

been vitiated. in that sense,

PUHCA repeal would raise the

bar for consumer efforts to organ-

ize to protect against strandings-

before consumers even get a han-

dle on the issue.

Strengthening the economic

and political hand of utilities is

one risk of unilateral repeal. An-

other is the fact that PUHCA re-

peal will extend a vested interest

in $200 billion of stranded cost re-

covery to non-utilities-entities

that otherwise would be inclined

to oppose paying for stranding.

How can this be? All a non-utility

firm need do to trigger holding

company status now is own 10

percent of an electric utility, which

prevents many firms from own-

ing utilities and thus becoming

subject to PUHCA regulation.

However, if PUHCA restrictions

are lifted, many firms may pur-

chase utilities-if for no other rea-

son than that utilities are virtually

guaranteed to receive stranded

costs. It’s the proverbial $20 bill

on the sidewalk: Once non-utility

businesses realize there is such a

tremendous stake in pre-competi-

tiolz utility profitability, it’s a sim-

ple jump to the realization that

collecting $200 billion “off the

sidewalk” is more lucrative than a

competitive marketplace. Unfortu-

nately for consumers, the political

force of utilities combined with

the finance, manufacturing, or

whatever other entities that elect

to diversify into the utility busi-

ness could be insurmountable.

The more organized parties there

are attracted like bears to honey

to a guaranteed payout of

stranded costs, the more difficult

it becomes for dispersed consum-

ers to resist.

0 bviously, few of these non-

utility firms would be

likely to oppose wheeling or di-

rect choice as such. But the poten-

tial $200 billion in strandings

would certainly be attractive.

Stranded costs amount to dollars

earned without having to com-

pete for them. These costs would

have been lost to investors in a

competitive environment, but

they are now the price for getting

to that competitive environment

in the first place.

Tlze Electricitu Townal

Acquisitions by non-utilities

might even become a way of

hedging or mitigating the impact

of one’s dependence on a high-

cost utility, since-for the moment

at least-even state regulators

have knelt before the altar of

stranded cost recovery and will al-

low utilities much of what they

claim, as evidenced by the non-by-

passable and euphemistic “Com-

petition Transition Charge” pro-

posed in California. Opposing

views, such as Massachusetts At-

torney General Scott Harsh-

barger’s position that the so-

called regulatory compact does

not exist, are clearly the excep-

tion.13

Nonetheless, cutting against all

this is the fact that in a post-

PUHCA environment, state regu-

lators would be in the driver’s

seat. The necessity to please multi-

ple state regulators and customers

as utilities attempt to expand

might require utilities to give up

on some of their claimed strand-

ings, if one assumes that stranded

costs would somehow be allo-

cated to n/l customers, not just to

home state customers and bypas-

sers. Also, as consumers become

more price conscious, regulators’

desire to attract new utilities into

a state may induce the incum-

bents to give up stranded costs

claims to remain competitive. Un-

fortunately, there’s no easy way to

know beforehand whether this

would be enough to protect con-

sumers in the short run.

VII. Conclusion

PUHCA repeal, while vital, is

not the defining feature of a

IamarWFebruarv 1996

move to a competitive market in

electricity,despitethegreatereffi-

ciencies it could afford to the exist-

ing industry structure. Rather,

the defining feature of reform is

competitioningenerationand

supply, and a right of direct access

by independent suppliers and

non-nativeutilitiestocustomers.

The proper structure for the

utility industry is one in which

any seller rnay sell to any buyer,

and any buyer may purchase

from any seller. Today’s verti-

callyintegratedmonopolystruc-

ture precludes such genuinecom-

petition.

As a result, genuine efficien-

cies and scale and scope econo-

mies are not approximated by a

PUHCA repeal that leaves intact

an anachronistic marketplace

full of vertically integrated mo-

nopolies. PUHCA repeal should

be a goal for the 104th Congress

during its upcoming hearings

and deliberations, but this

should also be seen as an oppor-

tunity to open the way for cus-

tomer choice among utilities-

not merely for utility choice

among customers. W

Endnotes:

1. Securities and Exchange Comm’n (Div. of Investment Mgmt.), The Regu-

lation of Public-Utility Holding Com-

panies (Hereinafter “SEC Report”)

(June 1995).

2. Agis Salpukas, in Power lndusf y,

Changes Batter Independents, NEW YORK

TIMES, March 17, 1995.

3. Similar concerns are expressed, for

example, by Scott Hempling, Mitigat- ing Market Power in Multistate Markets: Redesigning the Federal Regulatory Role.

Electricity Consumers Resource Coun-

cil Annual Seminar, October 19, 1995.

4. SEC Report, supra note 1, at 135.

5. Id.

6. SEC Report, supru note 1, Executive

Summary, at x.

7. SEC Report, supra note 1, at 136-37.

8. Peter Passell, A Makeoverfor Electric Utilities: Pozuer Industry, Facing Compe-

tition, Struggles zuifh Change, NEW YORK

TIMES, Feb. 3, 1995, at 1.

9. See Comments of the Competitive

Enterprise Institute on the Notice of

Proposed Rulemaking, FERC Docket

No. RM94-7-001 (Recovery of

Stranded Costs by Public Utilities and

Transmitting Utilities), Aug. 4, 1995.

10. Robert Michaels, Stranded Invest-

ment Surcharges: lneqzrifable and lneffi-

cienf, PUB. UTIL. FORT., May 15, I995 at

21.

11. National Independent Energy Pro-

ducers, Comments of the National In-

dependent Energy Producers on the

Notice of Proposed Rulemaking,

FERC Docket No. RM94-7-000 (1994).

12. St%?, e.g., R. E. MCCORMICK AND R. D.

TOLLISON, POLITICIANS, LEGISLATION,

AND THE ECONOMY (Boston: Martinus

Nijhoff, 1981).

13. Referenced in Five Massachusetts Utilities Join to Pursue Sfranded-lnvesf- llletlf CflllSe, NORTHEAST POWER REPORT,

June 9, 1995, at 7. For detail see Scott

Harshbarger, Initial Comments of the

Attorney General to the Common-

wealth of Mass. Dept. of Public Utili- ties, D.P.U. 95-30.

53