Crisis of Public Utility Deregulation and the Unrecognized Welfare State

Successful achievement of public policies requires satisfaction of conditions affecting political feasibility for policy adoption and maintenance as well as economic viability of the desired activity or enterprise. Fulfilling these joint requirements when pursuing deregulatory policies for public utility industries in the U.S. is particularly difficult given the legacy of the common law doctrines of “just price” and “businesses affected with a public interest.” Prior research has discussed how deregulatory policies create economic pressures to increase reliance on rate rebalancing and explicit universal service funding mechanisms. Utilizing the framework developed in Cherry (2001), this paper examines the political feasibility problems encountered by attempts to address these regulatory changes. In this regard, it is helpful to view traditional public utility regulation as a form of welfare state regulation, where the obligation to provide essential services to all Americans has been delegated to private utilities. As with efforts to retrench from other forms of welfare state regulation, deregulatory policies create substantial political obstacles. The retrenchment problems are examined in the context of the electricity crisis in California as well as the passage and implementation of the Telecommunications Act of 1996. As expected, retrenchment from low residential retail rates – the most universalistic benefit for customers – faces the greatest political resistance. The political and economic circumstances of regulatory design are further complicated for the telecommunications industry given the pressures to expand or extend other dimensions of the welfare state, such as access to advanced services and the delivery of certain telecommunications services to educational institutions and health care providers. The societal trade-offs of monopoly as opposed to deregulatory policies must be reexamined in light of the instability created by the greater difficulties in satisfying both political feasibility and economic viability constraints under a deregulatory regime.