Energy Deregulation

From Marginal Revolution, nobel prize winning economist Vernon L. Smith has some recommendations regarding energy deregulation. Here's a sample:

The Federal Energy Regulatory Commission got it right at wholesale level: They moved to require generation companies to be separated from the transmission grid. They understood that you cannot have a competitive wholesale market if generators also own transmission. This would allow energy production to be combined with the more limited contestability of the transmission grid and unnecessarily restrain energy competition in the wholesale market.

So why don't we just extend the FERC principle to the local wires and energy purchased by retail customers? The political and regulatory structure stands in the way. It would infringe states rights: FERC has jurisdiction over the interstate energy transmission system, but no authority over the local wires or retail energy competition on those wires. Each state long ago granted a franchised local monopoly to your utility company. This legally restricted service to one set of wires, but implicitly was interpreted to mean that each utility could tie customer purchases of energy to the rental of the wires--a right they are loath to give up.