Review of Industrial Organization 16: 421–425, 2000.
Designing Competitive Electricity Markets, Hung-po Chao and Hillard G. Hunt-
ington, editors. Dordrecht: Kluwer Academic Publishers, 1998, $89.95.
One might trace the seemingly inexorable move toward competition in the elec-
tric power industry to the 400 mile, 345 kilovolt transmission line running from
Niagara Falls to New York City that failed on November 9, 1965, triggering The
Great Northeast Blackout. This blackout accelerated important changes in the way
utilities operated their systems. Reliability organizations were formed, like the New
York Power Pool and the Northeast Coordinating Council, to establish operating
protocols and other arrangements by which utilities would coordinate their systems
and even draw on each other’s generating resources in order to improve reliab-
ility of the electrical system and avoid disastrous outages. To achieve these ends,
transmission interconnections between utilities were improved to accommodate the
transfer of electricity between systems.
Strengthening coordination between systems had the important consequence of
making it easier to trade power between utilities for purposes other than reliability,
e.g., for temporarily replacing the output of one utility’s generating unit with that
of another’s in order to reduce overall generating costs. The physical feasibility
and ﬁnancial accountability that grew from these exchanges raised awareness of
the potential for other types of wholesale power transactions, such as sales to
transmission-dependent municipal and cooperative utilities from suppliers other
than the transmission-owning utility.
This growing aptitude in coordinating power transfers happened in tandem with
other key phenomena. The most notable among these was the philosophical attitude
that moved deregulation in other important industries, especially the long-distance
telephone industry. The Public Utility Regulatory Policy Act of 1978 legislated the
beginning of the end of a comprehensively regulated utility industry by requiring
utilities to rely on generating resources owned by non-utility entities, effectively
ending utility monopoly over the generation of electricity and recognizing the feas-
ibility of competitive generation markets. In 1992 the Energy Policy Act ushered
in the era of open access transmission and set the stage for direct retail choice.
The introduction of competition into the electric power industry and the many
issues requiring resolution are the impetus for the book under review. Chapter 1 is