NewYorkUniversity
LawReview
Current Issue

Volume 71, Number 4

October 1996
Articles

Deregulatory Takings and Breach of the Regulatory Contract

J. Gregory Sidak, Daniel F. Spulber

Over the past century, as the regulatory state steadily expanded its reach, courts frequently addressed claims that regulatory actions amounted to an unconstitutional taking. Recently, however, legislation in the telecommunications and electric power industries have brought deregulatory concerns to the fore.

In this landmark Article, Mr. Sidak and Professor Spulber present the first detailed analysis of the interaction between the Takings Clause deregulation, network pricing, and contract law. In the typical case of regulated industries, firms and their investors agree to bear considerable “incumbent burdens” in exchange for a regulated rate of return. Sidak and Spulber first demonstrate that this arrangement represents a regulatory contract and find that recent deregulatory measures constitute breach. The authors then argue that whether or not a regulatory contract in fact exists, recent mandatory unbundling in the electric power industry and open-access regulation in the telecommunications field effectuate a taking without just compensation. Finally, relying on concepts such as investment-backed expectations and the efficient component-pricing rule, the authors not only demonstrate that damages would be equivalent under either contract or takings theory, but also warn that governments could face enormous liability for their deregulatory measures.

Notes

Extending Pruneyard: Citizens’ Right to Demand Public Access Cable Channels

David Ehrenfest Steinglass

An appreciation of the importance of diverse viewpoints and of the commingling of those viewpoints in a democratic society animates the protection of public speech achieved by the public forum doctrine. This Note proposes that cable access advocates should ground a similar claim to access under the public forum doctrine as it has been interpreted in state courts. Cable television, and soon the new technologies of communication labeled the “information superhighway,” will far outstrip the shopping mall in altering the terms and domain of public discourse. The arguments that commended extension of the public forum doctrine to the mall thus resonate even louder in the context of those communications media.

Limiting the Use of Heightened Scrutiny to Land-Use Exactions

Jonathan M. Block

This Note examines the Manocherian court’s use of heightened scrutiny and argues that application of heightened scrutiny, though perhaps justified in Nollan and Dolan, should not be applied to general regulatory takings claims. The purpose of this Note is to use Manocherian as an example in arguing that the use of heightened scrutiny under the Takings Clause should be limited to those situations where the Supreme Court has already applied it—land-use exaction settings—and that it should not be extended to general regulatory takings claims.

Responses

Deregulatory Takings and Breach of the Regulatory Contract: Some Precautions

Oliver E. Williamson

Gregory Sidak and Daniel Spulber raise a series of important and controversial issues in their article, Deregulatory Takings and Breach of the Regulatory Contract. As the title of their article suggests, they interpret recent and prospective efforts to deregulate telecommunications and electric power networks as “takings” and recommend that regulated firms should be compensated for “stranded costs.” They further argue that the “efficient component- pricing rule” (ECPR) is the appropriate rule for pricing access to the network by entrants. Throughout, they adopt a contractual approach to regulation in which (implicitly) the managers of both regulated firms and regulatory agendas are assumed to behave in a stewardship fashion.

There is much in this approach with which I agree, but I also have a series of reservations.

Deregulatory Takings and Breach of the Regulatory Contract: A Comment

Stephen F. Williams

Gregory Sidak and Daniel Spulber develop a comprehensive argument both justifying compensation of utilities for the adverse effects of various deregulatory developments and explaining how to do so. They read the Takings Clause as expressing a fundamental principle of political economy requiring compensation in order to prevent—or at least reduce the risks of—government action destructive of wealth. Compensation thus should be required in most instances where the action cannot be justified as preventing harm or where the “settlement costs” of providing compensation are not excessive. The last qualification rules out compensation, for example, for losses resulting from changes in monetary policy.

My central concern about the authors’ argument is the question of why the old utility may not be in a good position to compete with new entrants.