THE TAKINGS CLAUSE of the Fifth Amendment commands: “Nor shall private property be taken for public use, without just compensation.” The sweeping deregulation of public utilities being proposed and implemented at the state and federal levels promises to bring the benefits of competition to markets for electric power and telecommunications. Those benefits include improvements in operating efficiencies, competitive prices, efficient investment decisions, technological innovation, and product variety. The benefits of competition, however, do not include forced transfers of income from utility shareholders to their customers and competitors as a result of asymmetries in regulation. Asymmetric regulation can serve only to impede competition and impair the financial health of public utilities. As regulators dismantle barriers to entry and other regulatory restrictions, they must honor their past commitments and avoid actions that threaten to confiscate or destroy the property of utility investors on an unprecedented scale.

In this book we examine regulatory commitments and the potential for the deregulation of regulated network industries to cause massive takings to occur. We connect that analysis to what has, until now, been regarded as principally a technical problem in economic theory and regulatory practice: the design of efficient access pricing. We consider the selection of access prices such that, in the new competitive environment, a public utility will have an opportunity to achieve for its investors the expected earnings associated with the former regulatory regime under which the utility made (and regulators approved as prudent) enormous investments in long-lived facilities and other specialized assets to serve its customers.