Barriers to Entry:
Consolidation: Key to the Future?
Why integration may win out in the long run.
its history. The most formidable problems will demand the finest technical resources and the most capacious financial resources-exactly the capabilities that integrated and consolidated systems are likely to possess. Environmental challenges are probably the most trying of all the multifarious challenges facing the electric power industry. And this in itself may be the most potent factor leading to integration.
Integration also may yield financial benefits, particularly if it demonstrates improved reliability. Capital may be more available on better terms to large systems under firm central control.
The question remains, however, whether consolidation will bring back troubling concerns about a resurrection of the "power trust." Will the burgeoning size of the electric power entities enable dangerous levels of economic and political power? One must bear in mind that the holding companies of the 1920s and 1930s were subject to no public regulation. The states were precluded by the interstate character of these concerns, and there was no federal body to step into the breach. PUHCA invested regulatory power in the Securities and Exchange Commission, but this arrangement was joined with the death sentence, which put an end to "power trust" concerns in its own way.
In the future, as I would envision it, interstate consolidations of electric power providers would have to be subject to strict federal regulation to monitor both the operating and the financial aspects of the business. State regulation also could play a role, but its effectiveness obviously would be limited by the interstate nature of the regulated entity. Hence, there must be a clear understanding that fully empowered federal regulators were prepared to take whatever steps were needed for the protection of consumers, investors, and the public interest. Fearless and forceful regulation could go a long way toward bringing concerns about the "power trust," which was a real and very disturbing source of anxiety in its day, into line with present-day reality. The industry should welcome, and even seek, this sort of regulation, just as Insull in his day advocated state regulation as a bulwark against public ownership.
There will be no outburst of enthusiasm for this analysis, which portends the creation of a set of huge electric power providers impossible to adequately discipline through competition and probably thought to be too powerful to be firmly regulated. I concede that there are obvious criticisms of the outlook presented here that will have a lot of appeal and a degree of validity. But, for a network industry that provides perhaps the most crucial component of the infrastructure, integration is a quality that has recommended itself intuitively since the outset of the industry. That is why it was looked on with approval and exempted from the death sentence in PUHCA.
A good case can be made for the failure of nuclear power in the United States based on the fragmentation of the industry here in comparison with places where it has been regarded as successful. And many of the policies that have accompanied wholesale deregulation-such as the creation of regional transmission organizations and independent system operators-have advanced the values