ABSTRACT
State governments have been the key actors thus far in developing and implementing policies to encourage retail electricity competition. A policy question has been whether states are acting quickly enough, or whether the federal government should step in to encourage or force them to open markets by a particular time.
Keeping control with the states allows the nation as a whole to learn from what worked in one place and what did not work so well someplace else. One size may not fit all, in that the benefits of opening markets may be considerably greater in some states than others. In addition, to impose a federal solution could cause needless and costly difficulties in trying to amend or reverse the delicately balanced solutions achieved by states that are moving ahead in opening retail markets.
However, a presumption that state actions might reflect a proper balance of interests is less convincing when that state’s decisions have effects that go across their boundaries. When interstate effects are significant, the federal government can help to improve policies by serving as a venue where all affected parties have a say. Specific areas in which the federal government can play an effective role include reforming existing federal laws that may inhibit competition, regulating interstate transmission grid prices and operation, enhancing market liquidity, enforcing antitrust and environmental laws, and coordinating commercial standards and practices. Also, states themselves may be able to negotiate solutions and set up regional authorities to manage issues that affect an entire region but not the nation as a whole.
