TECC Group, Inc. has identified 14 U.S. investor-owned electric utilities (IOUs) as major players in research and development (R&D), with expenditures in excess of $10 million. TECC's report,...
Breaking the Bulk-Power BottlenecksWallace Edward Brand
By Wallace Edward BrandWallace Edward Brand practices law in his own firm in Washington, DC, where he represents small electric systems. Previously, he worked as a trial attorney at the Federal Power Commission, where he tried the Arkansas Power & Light case that established federal jurisdiction for operations linked to interstate power pools, and at the antitrust division of the Justice Department, where he tried electric utility cases under Atomic Energy Act section 105.
t t t t t
The debate over "PoolCo" could learn something from antitrust law. The limited analysis of PoolCo that has been presented so far to the California Public Utilities Commission and the trade press ignores accepted methods of antitrust analysis in evaluating impacts on competition. Relevant markets have not been defined. The debate has failed to discuss or analyze the barriers to competition, especially barriers that can be overcome by institutional arrangements.
Competition, of course, presumes two or more sellers of the same product (or reasonable substitutes) vying for the trade of a buyer or buyers. Competition rewards the efficient and innovative; it weeds out the inefficient and restrains the greedy. By "competition" here I refer to fair or constructive competition, not "destructive" or "predatory" competition. The latter eliminates targeted rivals, no matter how efficient or how willing to accept a small profit margin.
As a general matter in our competitive economy, when the price of a product rises, other sellers will enter the market if they can purchase the necessary factors of production and combine them to sell at a profit.
Competition works in discrete markets. These markets are defined by product (or service) and by geographic area. Competitive markets work best when there are many sellers and many buyers. Contemporary wholesale electric markets are marked by technological barriers to entry and relatively few sellers. In unconcentrated markets, these technological barriers could be surmounted by the availability of "factors of production" that represent byproducts of the production of power. Such factors include: "emergency power" (from reserve sharing arrangements), "unit power" (from arrangements for coordinated development of base load units), and "network transmission" arrangements (on fair terms). These factors could be obtained by institutional arrangements such as traditional power pooling on market-driven terms and conditions. But in a concentrated market, these factors of production ordinarily will not be available on fair terms, or on any terms, in the absence of traditional pooling compelled by regulation or by the courts under the antitrust laws. Since most, if not all, electric bulk-power geographic markets in the United States are concentrated today, regulation is required to assure a new entrant's access on fair terms to the necessary factors of production for the sale of electric power in bulk at wholesale.
Competition works unless barriers are present (em either natural, technological, or artificial. Most observers accept natural barriers as inevitable, leading in most cases to monopoly rents.1 Artificial barriers are outlawed and remedied by the courts under the antitrust laws or by direct regulation. Technological barriers may sometimes be overcome by institutional arrangements. If so, excluding anyone from those arrangements