Vertically integrated utilities: The regulators` poison`d chalice
There is no prospect of a truly competitive market for generation so long as monopoly owners of transmission and distribution wires are allowed to own generating plants. But it may be possible to do as some states have already done - pay the incumbent utility its stranded costs on condition that it divest its generation and clear the way for a truly competitive market structure. Would that it were possible to develop empirical studies to capture with precision the effect of electric utility industry restructuring on market power and on economic performance. After all, the structure of the industry is changing by the week, and there is now a widening variety of company formats available for study. There are fully integrated electric companies. There are companies that are spinning off some or all of their generation. There are non-integrated generators. There are utilities that are diversifying into businesses both related and unrelated to their principal utility businesses. It would be wonderful to compare the performance, prices and profitability of these variously structured entities. Alas, we cannot, for three reasons. First, not enough time has elapsed to give a data base that has any meaning. Second, it would be difficult to assess the relative performance of variously structured companies because all price and cost data reflect the prevalence of excess capacity, what Harvard professor William Hogan calls {open_quote}the hangover of old mistakes.{close_quote}. A third reason why an empirical analysis of the effects of vertical integration is not possible - and may never be - is that costs, prices and profits are determined by men and women - that is, by federal and state regulators, not markets.
- OSTI ID:
- 535275
- Journal Information:
- Electricity Journal, Vol. 10, Issue 3; Other Information: PBD: Apr 1997
- Country of Publication:
- United States
- Language:
- English
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