State and Federal Roles in Facilitating Electricity Competition: Legal and Economic Perspectives in the Electricity Sector

Jurisdictions have overlapping authority regarding electricity restructuring when a national authority and subnational regional governments—for example, states—both have a say. The initial sections of the paper review the division of regulatory authority over electricity markets in the United States, constitutional provisions, recent developments, and how federalist concerns have been manifested in antitrust and telecommunications. Justifications for using private markets rather than central governments suggest an efficiency approach to dividing authority, based on information, cross-border externalities, and agency, that is, the ability of a government to reflect the political preferences of its constituents. The goal is not to impose a “right” policy (e.g., promoting efficiency) through a rhetorical “back door,” but to set up rules that would best reflect constituent views. This analysis suggests that transmission and environmental regulations should be set on a regional or national level. States should retain control over when and how to open local retail markets. Uncertainty regarding the best way to organize electricity markets warrants localized experimentation. The paper concludes with brief discussions of nonefficiency ethical criteria and transnational considerations.