[BETA] Fortnightly

The structure of the utility and telecommunications industries has changed significantly since I began my role as a regulator 15 years ago. Technological developments and a competitive environment, as opposed to regulation, have provided the major catalyst for change. As a result, utility companies, which have historically enjoyed the favor of Wall Street investors, will soon face unprecedented revenue growth problems. Because of the industry's maturity, its limited growth potential, and the possibility of facing mandatory retail wheeling from other utilities with lower production costs, utilities can no longer afford to operate under traditional management principles. Regulators must adapt policy to these changes to minimize uncertainty in investment as well as to balance consumer welfare with sound economic and financial principles.

Electric and gas utilities, and gas pipeline companies, face increasingly competitive markets as state governments attempt to eliminate barriers to competition. Some

state regulators (em the California Public Utilities Commission, for example (em are considering retail competition in local power generation and distribution markets. Technological advances are also contributing to the growth of competition. New power generation technologies can now provide energy at a lower cost than existing utility power systems.

Last year Congress failed to pass long-overdue legislation to replace the Communications Act of 1934; this year it has set an aggressive agenda to that end. New legislation will likely eliminate some of the barriers that prevent utilities and other companies from offering telecommunications services.

Many communications companies currently are considering partnerships with utilities. Four of the nation's five largest cable companies (em TCI, Cox, Comcast, and Continental (em recently formed Cable Utility Communications Services (Cable UCS) to explore potential alliances with electric, gas, and water utilities. Telephone companies are also forming partnerships with utility companies. Sprint and Entergy are currently participating in a home automation/energy management project in Little Rock, AK. In addition, utilities are being approached by companies bidding on personal communications services (PCS) frequencies. For example, DukeNet Communications, a subsidiary of Duke Power Co., has formed an alliance with BellSouth to bid on PCS licenses in Duke's service area.

Money and Leverage

While customers may benefit, the primary motivation behind the joint effort of these companies is to increase revenues by providing customers with a variety of services over a single network. Both cable and telephone companies are positioning themselves to provide high-speed, two-way digital video services, and high-quality telephony. These mergers could lead to more services at a lower cost to consumers. Utility companies make attractive partners, given their access to virtually every home in the nation.

Utilities also have assets that will be useful in deploying telecommunications services. They can call on extensive experience in the areas of billing and customer service. They already possess field maintenance fleets with trained technicians, as well as conduits and rights of way. And they have private communications networks (PCN) similar to those of local telephone companies, which can be used to increase service efficiency. More important, utilities can leverage their physical plants to provide telecommunications services or lease this capacity to other telecommunications providers.

First, telecommunications systems provide