Review of Industrial Organization 22: 333–335, 2003.
Alternating Currents: Electricity Markets and Public Policy, Timothy J. Brennan,
Karen L. Palmer, and Martinez A. Salvador, editors, Washington, DC: Resources
for the Future Press, 2002, xi, 230 pages. ISBN: 1-891853-07-4 (paper); 1-891853-
Alternating Currents is a primer on restructuring the electric utility industry, up-
dating A Shock to the System. It opens with a chapter surveying restructuring
issues, with the remaining chapters examining these issues in three parts. Part I
(ﬁve chapters) examines the industry’s past, including several restructuring exper-
iments. Part II (ten chapters) examines the opportunities for, and issues raised by,
restructuring. Part III (one chapter) examines the prospects for restructuring.
Chapter 1 surveys important restructuring issues that must be addressed by
policy makers. These include which aspects to deregulate, responsibility for bal-
ancing quantity supplied and demanded, and the implications of deregulation for
public power, emissions, and subsidized programs.
Part I examines the industry’s past. It begins by laying some groundwork. This
includes a discussion of the physical properties of electricity, the vertical stages of
production, the opportunities for restructuring, and the players. It then examines
important legislation: the Federal Power Act (1935), which assigned state (retail)
and federal (wholesale) jurisdiction over electricity markets; the Public Utility
Holding Company Act (1935), which simpliﬁed utility structure; and the Pub-
lic Utility Regulatory Policy Act (1978), which established a class of non-utility
generators and required utilities to open their grids to them.
Once this groundwork is laid, the early restructuring experiences of Chile,
the United Kingdom, and the later experiences of Pennsylvania and California,
are discussed, the latter in some detail. California’s experiment worked well
for two years before running into problems. Some problems arose from natural
causes, e.g., drought and high natural gas prices, while others arose from political
causes, e.g., retail price controls and a lack of long term-contracts. No general
policy prescriptions emerge from these experiments, except that the technically
demanding properties of electricity make restructuring difﬁcult even under ideal
Part II examines salient features of restructuring. These may be broken into two
groups, related to how restructuring is to take place, and to the implications of
competition for programs developed under regulation. Because the properties of