Electricity Regulation in an Environment of Technological Change and Competitive Retail Markets: Implications of the Bell Doctrine and Economic Experimentation
L. Lynne Kiesling
July 31, 2013
Persistent regulation in potentially competitive markets can undermine consumer benefits when technological change both makes those markets competitive and creates new opportunities for market experimentation. This paper applies the Bell Doctrine precedent of “quarantine the monopoly” to the electricity industry, and extends the Bell Doctrine by analyzing the role of market experimentation in generating the benefits of competition. The general failure to quarantine the monopoly wires segment and its regulated monopolist from the potentially competitive downstream retail market contributes to the slow pace and lackluster performance of retail electricity markets for residential customers. The consequence of the incumbent’s incomplete exit from the retail market suggests that as regulated monopolists and regulators evaluate customer-facing smart grid investments, regulators and other policymakers should consider the potential anti-competitive effects of the failure to quarantine the monopoly with respect to the default service contract and in-home energy management technology.
Number of Pages in PDF File: 34
Keywords: regulation, electricity, rate-of-return regulation, competition policy, Schumpeter, Kirzner, entrepreneur, innovation, smart grid
JEL Classification: D42, K23, L26, L43, L94, O33working papers series
Date posted: June 25, 2012 ; Last revised: August 7, 2013
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