[BETA] Fortnightly

Why the DOE's recent report suggests we need new antitrust rules for "deregulated" utility markets.

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In a report issued in March, the Department of Energy raised the specter of market power haunting electric markets in the United States. Secretary Richardson summed up the findings of his agency in the report, "Horizontal Market Power in Restructured Electricity Markets."

"[E]lectricity supply in certain areas of the country is highly concentrated in the hands of only a few companies," said Richardson, citing the document. "This [finding] raises a warning flag that these companies will be able to dominate the market and raise prices." The secretary continued that if consumers are to realize "the full benefits" of electric competition, then federal and state legislation on electric restructuring must supply "the necessary tools" to address market power.

In issuing this report, DOE has shined a searchlight on a longstanding and highly controversial aspect of restructuring - the role of antitrust law, and especially the lack of a clear mandate from Congress on how regulators should apply laws and regulations aimed at controlling unfair competition.

For over a century, the United States built a massive electric power grid organized around a single concept: In each area of the country there is one supplier that owns all of the plants and power lines leading to every customer in that area. Utilities strived to build one kilowatt of power plant and one kilowatt of delivery capacity for every kilowatt of customer demand, plus an appropriate safety margin in case of outages.

When we discovered that we could securely reduce the safety margins by tying individual utilities together with transmission lines, and sometimes ship power from cheap sources to distant cities, we expanded the transmission grid. We did not build a national grid to ship power anywhere we wanted. Instead, our local systems were simply interconnected for reliability; the basic approach remained to provide power from the local franchise utility to its local customers. Indeed, our efficiency at creating a lean electric power grid led to the lowest amount of excess capacity, and therefore the lowest power rates in the world - under regulation. Even as wholesale power transactions among utilities became much more common, we still did not expand the high voltage very much because additional lines often are more expensive than the savings in generation costs that further interconnectedness could achieve.

It should come as no surprise, then, that in many parts of the country, the system is not engineered to make competition work. For any market to be competitive, a customer has to be able to shop from among several roughly comparable suppliers. Our electric system wasn't created to enable individual electric buyers to be able to transmit power from many different power plants over a wide area.

Since this finding isn't new, policymakers have taken some steps already to address the problem. First, the Federal Energy Regulatory Commission long ago required that all transmission lines be opened to all generation suppliers to facilitate