Crisis of Public Utility Deregulation and the Unrecognized Welfare State

Abstract

Successful achievement of public policies requires satisfaction of conditions affecting political feasibility for policy adoption and maintenance as well as economic viability of the desired activity or enterprise. This paper discusses the difficulties of satisfying these joint constraints given the legacy of the common law doctrines of "just price" and "businesses affected with a public interest." In this regard, it is helpful to view traditional public utility regulation as a form of welfare state regulation, as it suffers from similar political problems from policy retrenchment. The retrenchment problems are examined in the context of the electricity crisis in California as well as the passage and implementation of the Telecommunications Act of 1996. As expected, retrenchment from low residential retail rates - the most universalistic benefit for customers - faces the greatest political resistance. The societal trade-offs between monopoly and competition must be reexamined in light of the greater instability and political difficulties under a deregulatory regime.