Introduction to Regulating Utilities in an Era of Deregulation

Abstract

The papers in this volume reflect the rapid and dramatic changes that are currently taking place in the regulation of public utilities. Although changes are occurring in all utilities there is little doubt that telecommunications is currently undergoing more upheaval than the other public utilities — gas, electricity and water. The underlying approach to regulation of natural monopoly has changed. Presumably, the overwhelming economies of scale and scope, that were assumed to arise from a single supplier, now take second place in the minds of policy-makers who extol the benefits of entry and competition. Thus, because of changes in policy at the federal level, state regulators are no longer able to guarantee and protect a utility’s franchise from entry. In the case of telecommunications and electricity, entry and competition has been fostered by federal government policy. The divestiture by the American Telephone and Telegraph Company of the Bell operating companies on 1 January 1984 is a landmark in this process. Similarly, the Public Utility Regulatory Policies Act 1978 (PURPA) encouraged competition from cogenerators for electric utilities. With the deregulation of gas at the well-head in 1984 several new competitive contracting arrangements have become possible in the gas industry.