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Perspective

Fortnightly Magazine - February 1 1999

for many years if we continue moving state by state and company by company. Consumers may see benefits delayed - or worse yet, lost entirely amidst a patch work of different standards for products and services. National brands cannot develop easily if the market works differently in every state. Regulation has not proven it can provide service at lower cost, higher quality and greater innovation than competitive markets, yet the post-restructured markets include a heavy dose of regulation - both for incumbents and new market entrants.

Some use the word "deregulation" to describe what is occurring in the United States. Yet, there is little true deregulation taking place. No state has permanently abolished its utility commission. The Federal Energy Regulatory Commission still regulates all power plants and power wholesalers.

Professor Paul MacAvoy of Yale University recently described the current practice as "managed competition" - destructive of true competition. He suggests we abolish all regulatory agencies as the only way to insure real competition.

This is not the first time I've heard such a proposal. When I was nominated to the FERC by President Bush in 1990, Vice President Quayle was leading a campaign to abolish that agency. I did not take it personally.

It's a truism: No regulator can deregulate unless legislation does it first. To paraphrase a comment from an episode of the British comedy show, "Yes, Minister": The First Rule of Bureaucracy is "keep all you have." The Second Rule is to "get more." One should not expect regulators to reform themselves.

Or, in the words of a former Wisconsin regulator, uttered many years ago, "When you have them by the rate base, their hearts and minds will follow." Sometime later, in another life at the FERC, this same commissioner added, "If you make it profitable for utilities to do something stupid, they will do all of it they can."

Be warned, however. "What today's FERC gives, tomorrow's FERC can take away." At the state level, that means that "any Order is only an Order until it is changed."

On Capitol Hill, Congress first introduced a measure of competition in the electric power industry back in 1978 when it passed the Public Utility Regulatory Policies Act. Though it confirmed that step more than a decade later with the passage of the Energy Policy Act of 1992, Congress may need to finish the job it started but did not complete.

Branko Terzic recently stepped down as chairman and CEO of Yankee Energy System Inc., headquartered in Meriden, Conn. Earlier, he served as a commissioner on the FERC (1990-93) and the Wisconsin Public Service Commission (1981-86). He sits on the board of directors of Public Utilities Reports Inc., owner and publisher of Public Utilities Fortnightly.

10 False Steps Red herrings from those who oppose restructuring.

What Some Say: Why They're Wrong:

1.

Oppose any federal legislation. Going state-by-state discourages the best service offerings. It

stifles economies of scale and scope.

2.

First require pilot programs in each state. Are the 50 states (and D.C.) so unique as to warrant a separate

trial