Generation, Deregulation, and Market Power: Will Antitrust Laws Fill the Void?

Fortnightly Magazine - October 15 1996
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Monopoly rents? Not in the short run. The real enemy is a price war, fueled by indifference to stranded costs. And when that happens, antitrust laws won't offer much help.Competition has formally begun in the electric service industry. The Federal Energy Regulatory Commission (FERC) has issued Order 888, giving generators access to wholesale loads throughout the nation. California's investor-owned utilities have filed applications with the FERC to establish an independent system operator and a Power Exchange, through which generators will receive market-based prices for their dispatched generation.

Regulators, to their credit, are not blind to the task. It can prove difficult to jump start competition in an industry that has operated, nearly from inception, as a klatch of government-mandated monopolies. The fear lurks that, notwithstanding open access and transparent bidding, incumbent utilities will exploit their vestiges of market power to restrict supply and achieve supra-competitive prices.

Yet, if history offers any guide, the most likely result in the short run will be a price war in those segments of the market that lie open to competition. Prices could fall dramatically, with stranded-cost recovery schemes perhaps perversely fueling price-cutting strategies.

Do the antitrust laws have a role to play?

The antitrust laws rose from a societal impulse to outlaw

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