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Fortnightly Magazine - January 15 1996

fees, access charges, or a universal service fund). But he sees no fool-proof way to determine whether deregulation will impose monopoly rents: "There is no way of knowing whether the new competition is efficient, or whether it is simply taking advantage of arbitrage opportunities."

But Kahn acknowledges the possibility of extensive layoffs in energy utilities, and warns not to discount the importance of what another writer has tabbed, "The Clash Between Progress and Security."

Might holding companies again threaten the common good, at the very moment that the FERC has apparently made the world safe for PUHCA reform? As FERC Commissioner Massey ponders, "Perhaps our standard for evaluating mergers should be whether a merger is efficient and consistent with robust competition."

PUHCA is dead. Long live PUHCA.

Nothing Beats a Divorce

On December 5 I rode down for the day to the DOE-NARUC National Electricity Forum, III, where I heard Steven Fetter (analyst, global power regulation, Fitch Investors Service, L.P.) poke holes in three assumed "truths" of the electric utility industry.

Hollow Truth No. 1: Competition is coming and regulators can't stop it. "I have yet to find a regulator who has the stomach to let markets operate," says Fetter. He predicted that the California Public Utilities Commission would eventually create a new system of subsidies. (The next day, the CPUC postponed its planned release of a final proposed rule in the "Blue Book" case until December 20, after press time.)

Hollow Truth No. 2: States will serve as laboratories for change. With all the federal-state jurisdictional conflicts that now persist, Fetter sees "no rush" by state regulators to give up power.

Hollow Truth No. 3: Functional separation will work. Fetter believes that total corporate divestiture will eventually prove necessary to mollify retailers facing vertically integrated competitors who control bottleneck facilities. "What about the 100,000 unionized dispatchers nationwide, with contracts and pensions, who work in utility control centers. Will they simply disappear when we appoint an independent system operator?"

Fetter cited the example of the AT&T divestiture, in which rules enforcing open network architecture did not prevent Bell Atlantic, reportedly, from barring employees of MFS (the competitive access provider) from using Bell company bathrooms.

Nothing beats a real divorce.



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