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Financial News

Fortnightly Magazine - May 1 1995

can be expected to resist change and are unlikely to take the initiative to spur competition. The reluctance of regulators to act is already apparent. It is present in the slow pace of their proceedings on competition. It is also evident in a role reversal where regulators have begun to protect utility rates from the downward pressure of competition. The future actions of regulators to facilitate competition will probably come in response to prodding from market forces, legislation, and court decisions. The regulatory path is extremely unlikely to become the fast track to competition.

Legislatures

Legislatures also have the ability to speed the emergence of competition. For instance, legislation could mandate retail wheeling or require transmission systems to operate as common carriers, either of which would advance competition enormously. The role that legislators will play, however, is problematic.

Legislators may not share regulators' strong incentive to resist change, but they lack a strong incentive to orchestrate change. Legislators are always subject to the pressures of the next election. They balance the need to appeal to voters with the need to curry favor with special interest groups to obtain campaign funds. Utilities, as an organized group of lobbyists, enjoy an advantage in promoting their case in this environment.

The legislative path, therefore, may not prove important in removing impediments to competition. The effectiveness of lobbyists makes early legislative action unlikely. Whether legislation will ultimately accelerate competition depends on how events unfold. For instance, legislation could become crucial if key legislators in some states take up the cause of competition and engineer passage of legislation that fosters competition and sets a precedent that other states follow. It is difficult to predict whether something like this will happen.

Courts

The courts have the ability to remove the barriers to competition in one fell swoop. As regulated monopolists, utilities are engaged in many activities that would be considered discriminatory and in restraint of trade in a competitive industry. If a court at some point finds that electric generation has the attributes of a competitive industry, it could rule that basic utility business practices are discriminatory and sweep away much of the regulatory structure overnight. For instance, a court could find that denying open access is discriminatory, or that condoning sharp local differences in rates is arbitrary.

The courts are much more likely to act in what they find to be the public interest than either regulators or legislators. The courts are unlikely to permit utility practices to continue that are not in line with the workings of the broader economic system. In fact, the courts have played major roles in other industries that have undergone deregulation, particularly telephone and natural gas.

The courts, however, cannot act on their own. They are necessarily silent until something is brought to them. And, as yet, nothing of consequence has. However, they will likely be asked to rule on competitive grievances, and as time passes, the case for finding that current utility practices are discriminatory will grow. Accordingly, the courts will probably play a critical role in breaking down the