Noted Economist Dr. Alfred Kahn is a firm believer thatregulators ought to plan for their “demise” as they usher incompetition to monopoly industries, but he conceded last week thatthis may not be entirely conceivable in the electric utilityindustry.

In an address at FERC last Wednesday, Kahn acknowledged thatthe “pervasiveness of the problem, the ubiquitousness of theessential [utility] facilities, [and] the continuing responsibilityof regulators to protect ratepayers against the burdens ofcross-subsidization” would make it difficult for utility regulatorsto totally step aside and leave everything to the antitrust laws.

“In the case of electricity, there are the great bulk ofsubscribers [who] are still captive to a single supplier and,therefore, [it’s] inconceivable that we would simply eliminate ratecontrols particularly for residential customers.”

Kahn affirmed the need for rules and regulation in the electricpower industry. Yet, at the same time, he said he was concernedthat “these legitimately required safeguards are providing theoccasion, in effect, for re-regulation under the guise ofprotecting competition” in power markets and other industries.

As an example, he cited states’ codes of conduct, which, in aneffort to attract new competitors to their markets, offer “specialprotections” to entrants, while imposing “restraints” on incumbentcompanies, such as utilities.”…[W]e are being threatened in thesecodes of conduct which are being proposed and indeed alreadyenacted in some of the states,” Kahn said. He noted that the codesof conduct aren’t just appearing in “hitherto monopoly markets,where a plausible, theoretical case might be made for some sort ofinfant-entrant protection.”

Kahn also weighed in against state rules that prohibit thesharing of employees, equipment and materials between regulated andunregulated affiliates – rules, he says, that go far beyond what isrequired by antitrust statutes. Some critics contend that suchsharing is a misuse of monopoly power, but Kahn sees it as an”efficient use” of resources.

“I’m not in any sense denying that in certain cases…it may bethat the competitive advantages of the utility companies are sogreat that competition will not be feasible unless there is sometemporary handicapping” of their monopoly power, he said. “Butcertainly the overwhelming majority of economists would say thoseare the exceptions…”

These are just a few of the areas in which regulators have gotto “learn to let go,” he noted. Kahn suggested that regulatorsfollow his lead at the Civil Aeronautics Board, where “we plannedfor our demise.” That is an “exercise I suggest to all regulatorycommissions even though I recognize that they can’t all do it asquickly…”

Susan Parker

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