cost-reducing technology adopted by the supplier adds to profit. The private producer also takes the risk that the innovation adopted will not perform as expected. Regulated firms, on the other hand, must pass all production economies realized through innovation through to ratepayers. They do not contribute to profit. When the outcome of adopting new technology is not favorable, the regulated firm may also be denied cost recovery by the regulator (Zimmerman, 1988). These incentives may combine to bias the regulated firm away from risky new technology, while leaving the private firm neutral.

There was a significant record of new technology adoption by the private power industry during the 1980s and 1990s. In addition to the rapid deployment of advanced gas-fired combined cycle technology described above, there was innovation in other areas as well. The first steam-injected gas turbine (STIG) was installed by a California paper mill subject to stringent air pollution control requirements (Kolp and Moeller, 1988). The adoption of circulating fluidized bed (CFB) coal combustion was also substantially more widespread in the private power section than among regulated or government-owned utilities (Grahame, 1990). In the area of renewable energy, the solar thermal technology of Luz International was commercialized through private power contracts. Table 8 shows that new wind turbine technology has very competitive prices for energy. Even when the intermittent nature of the output is taken into account, the prices compare favorably with conventional power production (Comnes, Belden and Kahn, 1995). While none of this evidence conclusively proves that more innovation will occur under private power than under a regime of regulation, it is clearly suggestive.

### I V. The Emergence of Federal Competition Policy

Although the private power segment of the U.S. electricity market was almost nonexistent before 1980, by 1992 independent power producers accounted for 10.7% of all electricity sales. Regional differences in policy and resource opportunities contributed to a large variation in private power development across states. Table 9 gives selected regional data, showing primarily those states with larger shares of NUG generation. These eight states account for 61% of total independent generation in the U.S.

The unexpectedly large developments following PURPA stimulated a dialogue on the role of competition in electricity generation. This dialogue emerged in 1988 when FERC issued three Notices of Proposed Rulemaking (NOPRs) that addressed the commission's perceptions of appropriate reforms of the PURPA framework. Although these did not result in any explicit rule changes, they signalled a new interest in competitive mechanisms.

FERC subsequently approved a number of wholesale transactions involving non-QF suppliers based on market prices. The precise characterization of when a transaction qualifies for such pricing was subject to case law definition (Tenenbaum and Henderson, 1991). FERC activity in merger cases also showed a strong concern for competitive effects. As a condition for approving the merger of Pacific Power and Light with Utah Power and Light, specific transmission access conditions were required for third-party sellers.