ELECTRICITY AND FEDERALISM - UNDERSTANDING REGIONAL DIVERSITY

Regional systems, increased competition, and environmental imperatives are forcing a reallocation of state and federal regulatory responsibi lities for the US electric power sector. The great extent of regional diversity in the sector raises a policy relevant empirical question. I s this diversity due to choice or circumstance? This paper finds circu mstance to be a more significant determinant of fundamental performanc e than choice, but also finds evidence that decisions at the margin re flect the diverse preferences of regional policies. This suggests a co ntinued role for (more responsive) state level regulation in order to satisfy diverse preferences. Uncertainty about the optimal end-point o f restructuring reinforces the value of continued state regulatory exp erimentation.