Determinants of regulatory policies toward competition in the electric utility industry

Statistical results from this study generally support the Stigler-Peltzman theory of regulation. The only finding not consistent with Peltzman's formulation of the theory is that electd officials are more likely to favor procompetitive policies than appointed officials. Peltzman has argued this should be an unimportant factor. For public policy purposes, however, it seems that any movement toward elected regulatory commissions would tend to foster pro-competitive policies, at least in the short run. Data reveal that an increase in realized monopoly power of the utility increases the probability of hostile PSE policies toward competition. An increase in average value added in manufacturing and a decrease in the state's per capita income increased the probability of favorable PSC policies toward competition. Also, the more powerful are natural gas interests, the more hostile are commission policies toward competition. These empirical findings refute the hypothesis that regulatory policy is somehow an exogenous variable which results from ad hoc political and administractive factors. Instead, it appears that regulatory policy is a direct result of economic factors. Copyright Martinus Nijhoff Publishers 1984