The Unsustainable Costs of Partial Deregulation

The Unsustainable Costs of Partial Deregulation

Paul W. MacAvoy
Copyright Date: 2007
Published by: Yale University Press
Pages: 208
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  • Book Info
    The Unsustainable Costs of Partial Deregulation
    Book Description:

    Three decades ago, federal policymakers-Republicans and Democrats-embarked on a general strategy of deregulation. In the electricity, gas delivery, and telecommunications industries, the strategy called for restructuring to separate production from transmission and distribution, followed by elimination of price controls. The expected results were lower prices and increased quality, reliability, and scope of services. Paul W. MacAvoy, an economist with forty years of experience in the regulatory field, here assesses the results and concludes that deregulation has failed to achieve any of these goals in any of these industries.MacAvoy shows that we now have onlypartialderegulation, a mixture of oligopoly structure with direct price control. He explores why this system leads to volatile and high prices, reduced investment, and low profitability, and what policy actions can be implemented to address these problems.

    eISBN: 978-0-300-13775-0
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. List of Figures
    (pp. vii-viii)
  4. List of Tables
    (pp. ix-x)
  5. Preface
    (pp. xi-xx)
  6. Chapter 1 Introduction to Network Technology and Market Structure
    (pp. 1-12)

    In electricity, natural gas, and telecommunications markets, the configuration for the delivery of services, whether in terms of shares of sales, revenues, or product, is determined by network technologies. In each of these industries, a product is received at a network’s nodes and transported on links to hub switches, where it is directed to other links to the retailer or consumer. The business consists of the service functions of collection, transmission, and distribution, which are neither necessarily integrated backward into making the product nor forward into retail delivery of that product to the consumer. Although the language varies depending on...

  7. Chapter 2 The Regulation of Networks
    (pp. 13-35)

    The interaction between the oligopoly strategies of firms and the directives of regulatory agencies to determine prices and service offerings results in defining the “performance” of network service providers. Regulatory agency directives determine not only who the service provider is but also which customers are to receive service. This suggests that each of the three industries is subject to complex pricing rules, many of which are the result of using common methods of regulatory control on network companies.

    These methods changed, as “phased deregulation” swept across gas transmission, electricity transmission, and telecommunications. Traditional utility regulation limited entry, to establish exclusivity...

  8. Chapter 3 Electric and Gas Network Performance and Partial Deregulation
    (pp. 36-68)

    There has been a wide disparity in the partial deregulation process between intentions and results for market performance. The intent had been that, with open entry and access to the facilities of incumbent producers, markets for network services would be populated by independent sources of supply that would generate price reductions, along with service increases emblematic of competitive behavior. New entrants, however, have not flooded into the construction and operation of networks in electricity and gas transmission. After almost ten years of policy implementation, very few links in these networks are owned or operated by independents. Three or four firm...

  9. Chapter 4 The Strategic Response of Pacific Gas and Electric Corporation to Partial Deregulation during the California Power Crisis
    (pp. 69-93)

    The supply-demand conditions for power in northern California during 2000–01 were in many aspects unlike those in other markets before or since. They may not be representative of future markets there or elsewhere. The coincidence of reduced supply because of lower hydropower availability, and increased demand because of an unexpected surge in the West Coast business cycle, is not likely to occur again. Nor would power distribution companies again be likely to do little or nothing in response to a multiyear decline of the “safety margin” of excess generating capacity. Yet the California scenario, while extreme, contains the essential...

  10. Chapter 5 The Long Distance Telephone Networks and Partial Deregulation
    (pp. 94-128)

    In telecommunications the performance of the incumbent local exchange networks, each in its own franchise territory, along with less than a half-dozen long distance networks, has been dominated by FCC implementation of the Telecommunications Act of 1996. The act, in the tradition of network restructuring, called for the development of additional local exchange wireline networks, most likely to be realized by the entry of the current long distance carriers into markets closed to them by the 1984 antitrust divestiture of AT&T. Then restructuring would take the second step, with the incumbent local exchange networks expanding into long distance in their...

  11. Chapter 6 The Singular Result of Partial Deregulation and What Can Be Done
    (pp. 129-146)

    Chapters 3 and 5 explored the effects of a generic plan of partial deregulation on the incumbent large carriers that operate networks in the natural gas, electricity, and telephone service industries. Chapter 4 provided a case study of the financial impact of the California plan for partial deregulation on a leading network carrier of electricity during the state’s power crisis of 2000–01. What was common in these appraisals was that large network systems, independent or linked together, operated by four or fewer companies in regional or national markets, made up the market structures. There was an initial stage of...

  12. Notes
    (pp. 147-164)
  13. Bibliography
    (pp. 165-172)
  14. Index
    (pp. 173-181)