September 1995
David B.
Schlosser, Director
Public Affairs and Consumer Protection
Kansas Corporation Commission
Over the last decade, rather quietly, a djinni slipped out of its bottle in one of the most
unlikely sectors of
But the successes and learning
experiences of those initial reorganizations have led to such momentous events
as the almost-complete deregulation of trucking. Ten years ago, such action would have
generated unprecedented public interest; last year, it didn’t merit more than a
few lines in your daily newspaper.
Deregulation of trucking, long distance
telephone service, airline travel, and natural gas transportation generated
extraordinary consumer benefits. Freight
hauling, long distance usage, domestic air travel, and natural gas use surged
-- while prices diminished or remained steady in constant and nominal dollars.
Such successes, combined with improving
technology, moved monopoly deregulation into the utilities Americans take for
granted -- local telephone, gas and electric, and cable television
services. The House and Senate debate a
politically charged overhaul of telecommunications; the Federal Energy
Regulatory Commission proposes unbundling electric services, as it did natural
gas just a few years ago; state regulatory commissions permit wholesale and
retail wheeling of electricity, and open local telephone exchanges;
municipalities seek competitors for their local cable television franchises;
and energy utilities position themselves to offer local, long distance, and
cellular phone service, while phone companies ache to offer cable television.
Neither the dizzying pace of change, nor
the explosive growth of alternate providers, mean typical homeowners or
business people will see any dramatic changes in the services they
receive. Many of the changes may take
place without their knowledge or, absent due diligence, their input. Most people will not realize anything has
changed until a telemarketer interrupts their dinners to offer a service
package -- gas, electric, local phone, long distance, cellular phone, and cable
television -- from one provider, which happens to be recently
incorporated small, local business operating out a storefront in a suburban
strip center.
If these changes will be relatively
transparent, that does not imply they will be painless or occur without
conflict. The traditional model of
utility regulation -- that created a seamless infrastructure of energy and
communications, enhancing standards of living and economic opportunities
throughout
The traditional model subsidized
lower-than-cost prices for small business and residential consumers with
higher-than-cost prices to big business and for enhanced services. It extended communications and energy services
to virtually every home in
However, true competition means that
prices must reflect costs. Otherwise,
monopolies can drive competitors out of the market, or start-ups can cherry
pick the high profit margin customers, or both.
If prices truly reflect costs, some consumers will be priced out of
utility services -- services that are literally indispensable in
This is the most fundamental challenge
facing utility regulators in an environment of expanding competition.
Utility regulators recognize, under
conditions of technological change and greater competition, they can more
effectively discipline competitive market forces by competitive pressure in
concert with some regulatory oversight, than by regulation or competition
alone. The coming years, like the recent
past, will see regulators taking some steps toward competition, and some back
-- studying the results of more aggressive regulators and deregulators -- and
trying to find the right balance between letting the djinni
of competition partly and totally out of the bottle.