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Public Power: An Inexpensive Insurance Policy Against Consolidation

Fortnightly Magazine - September 1 1997

public power in the Otter Tail case that brought antitrust considerations into the electric utility regulatory framework. It was public power that convinced Congress to amend the Atomic Energy Act to require antitrust review by the Nuclear Regulatory Commission in permitting and licensing nuclear power plants. Transmission-access conditions resulting from this review made limited but important inroads in breaking down the IOU monopoly in transmission. It was public power that pushed for decades to obtain meaningful transmission-access authority for FERC.

The private power companies, fearful of competition, fought these and other pro-competition initiatives for decades. Today, these private companies are the most resistant to change and competition. These private companies continue, for example, to extract monopoly rents for transmission service. A recent survey by R.W. Beck for the American Public Power Association found transmission rates filed under the new Order No. 888 tariffs are on average 70 percent to 80 percent higher than rates IOUs charged for the same service under tariffs previously approved by FERC as "just and reasonable."

Today, a few IOUs have embraced competition. Most, however, are resistant. One thing most IOUs agree on is their continued opposition to public power, rural electric cooperatives, TVA and the federal power marketing administrations. But they have been railing against these entities for decades, generally with the help of purchased consultants and independent institutes that, for a price, agree to carry their water.

Haranguing Public Power

Much of Mr. Munson's piece is simply a tirade against the PMAs and TVA, institutions that have no presence in the Northeast or Midwest. He indicts all the entities that fall within his definition of public power. He does this implicitly by his imprecision of the use of "public power" and explicitly through challenges to the legitimacy of municipal utilities and rural electric cooperatives in a competitive market.

Congress will, of course, have to come to grips with TVA and the federal power program as it wrestles with industry restructuring legislation. But Congress would be wise to follow the advice of

Secretary Peña to respect the complexities of the industry, not underestimate them. Preserving industry diversity, including public power, co-ops and federal agencies, is important. Such diversity is an inexpensive insurance policy against the consolidation of power in the hands of a few, large, unregulated monopolies.

Public power has an outstanding record in curbing the abuses of market power by IOUs. But it appears that putting in place a structure to ensure that market power issues are properly addressed is not, in Mr. Munson's view, a necessary condition to developing a market where sustained competition will flourish. He simply wants the PMAs to "get out of the [electric] business and let the free enterprise system work."

Free enterprise is not about limiting markets to a few oligopolists and allowing them allegedly to compete for a limited number of hydropower sites on national waterways. It is about freedom to enter and exit markets; equal access to physical and financial capital; and the absence of monopoly power. These conditions produce low costs, efficient prices, incentives to innovate and