Policy Studies Journal, Vol 15, No 4 June. 1987 ELECTRIC UTILITY REGULATION AND THE COMMUNITY A THEORETICAL ANALYSIS OF SOME EFFECTS OF REGULATION ON COMMUNITY WELFARE Ami K Makhija and Howard E Thompson INTRODUCTION Deregulation in the transportation and communications industries has raised questions as to the effectiveness of regulation in other industries in particuiar, we wonder what the impact of aiternative schemes of eiectric utility regulation wouid have on the welfare of the community which they seive and in which they reside In this paper we attempt to isolate these impacts using a theoretical modei of a community and an electric utility Our primary focus is on the efficiency of the economic system in providing for the general economic weifare as opposed to the issue of fairness or equity between individuais that results from any regulatory scheme The discussion of regulation of eiectric utilities usuaiiy revoives around the possibtiities of deregulation of generation, transmission, or distnbution and the impacts these possibilities would have on the economic system Underiying much of the discussion is the existence or non-existence of effective competition on the suppiy side to prevent the abuses of monopoiy power Where competition may be a factor, attempts are made to justify deregulation, where it is not a factor, regulation is justified ^ Trebinq (1986) is not sanguine about even this seemingly selective approach to deregulation He vividly points out the faults in the current discussion of dereguiation Regrettabiy, much of the debate over dereguiation has compared the worst features of traditional rate base leguiation with the performance of ideaiized markets or market behavior similar to what would be expected to prevail under perfect competition In essence a program of deregulation tiiat culminates in reliance on highiy imperfect markets wiil not improve efficiency, nor wiii It achieve equity goais Furthermore such fiawed markets wiii not perform significantiy better than fiawed reguiation a more promising course of action for pubiic policy invoives incorporating existing and potentiai market forces withm tiie framework of a broader program of