A critical assessment of electricity and natural gas deregulation

Journal of Economic Issues, June, 2008 by Harry M. Trebing

Regulation must also mandate standards of service. To be effective these standards must include both specific penalties and a requirement that sellers post bonds to cover any penalties associated with inferior performance. The standards would accompany any sale or transfer of assets or services. Merger guidelines would require proof of net efficiency gains that can only be achieved through merger. Transmission networks should be recast as regulated common carriers.

To treat environmental problems, regulators must develop a comprehensive benefit-cost analysis that spells out net public and private beneficiaries. This analysis would examine the full range of options for achieving pollution goals so that potentially cheaper alternatives, such as demand side management, could be evaluated. When a subsidized investment becomes necessary to achieve an environmental goal, regulators should impose the used and useful test to determine when a project should be terminated and how it should be written off. To properly assess corporate lobbying by regulated firms, all political expenditures should be charged off below the line and shifted to shareholders.

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