Introducing competition into the electric-utility industry: an economic appraisal

In their review of the literature and the current structure and regulation of the electric utility industry, the authors concentrate on the desirability of greater competition within the framework of the present electric-utility industry structure. They examine how public policy has been applied and where it is headed, then assess whether that policy movement is economically justified; i.e., whether technological or market changes opened up competitive opportunities that regulators can encourage by pressing for changes in firm behavior. Their conclusion is that competition as a constructive force in this industry must be accompanied by major policy revisions and some structural reforms or the costs will be greater than the benefits. Particularly costly are the combined policy of basing utility prices on average embedded costs, subsidies and preferences to publicly owned and cooperative utilities, and the physical characteristics of electric utilities. 174 references.