Power Commission Research Articles

The Formal Work-Product of the Federal Power Commissioners

* The Federal Government publishes each year a volume on the cases decided at the Federal Power Commission. The cases, rendered in chronological order, deal with matters related to pricing and sales of natural gas and electricity in interstate commerce. They are that part of the formal work or output of the five Federal Power Commissioners that is supposed to guide the surveillance activities of FPC staff members and ultimately the economic performance of the electricity and natural gas industries. The last complete set of such cases, Volume 42 of The Federal Power Commission Reports, provides a record of the last few months of the Chairmanship of Lee C. White in 1969 and the beginning months of the new Republican Chairman, John C. Nassikas, in that same year. As far as can be determined, not many friends or critics of the FPC have read this volume of 1041 pages through to the end, possibly because there are few general questions that can be answered by doing so. This volume is reviewed here to answer only two questions: what were the aims or goals of the Commissioners behind the decisions arrived at, and how are these decisions likely to affect the economic performance of the regulated companies? The goals of decision-making by the Commissioners should be made clear in the more than 350 cases in Volume 42. The legislation of Congress in the Federal Power Act and the Natural Gas Act, and the FPC cases decided on appeal by the Federal Courts, direct the Commissioners in their decisions and require the use of certain language in their written findings and orders. But it is not at all clear that precedent provides strict goals for the case decisions-the language of the statutes and appeals cases appears to be so general that it could serve as the basis both for decicling a case and for rationalizing a decision once it has been made. The Commissioners might well have their own reasons, and be able to express their will with wide latitude in their own decisions. The cases may show whether they seek to favor consumers, or rather to favor the producers they regulate. The first type of favoritism would tend to drive prices towards the level of

Problems of Natural Gas Supply: ABSTRACT

Since 1968 the United States has produced more gas than it discovered. This trend will continue as more heavy industry turns to natural gas and away from other fossil fuels in efforts to stem air pollution. New and proved reserves in Alaska are far from the marketing stage. The decline in drilling, to a 28-year low in April 1970, has been the result of 17 years of unnatural price ceilings on natural gas and, more recently, of the reduction in 1969 in the depletion allowance. However, current pricing trends by the Federal Power Commission, and incentives by pipeline companies and funds, now make deep wildcatting in the Anadarko basin and elsewhere very attractive. End_of_Article - Last_Page 1688------------

The Ash Council's Report on the Independent Regulatory Agencies

* On January 31, 1971, President Nixon released to the public a booklet entitled A New Regulatory Framework: Report on Selected Independent Regulatory Agencies. The Report represents a year's work by the President's six-member Advisory Council on Executive Organization, popularly known as the Ash Council.' The Council studied several Federal agencies: the Federal Trade Commission, the Federal Communications Commission, the Federal Power Commission, the Interstate Commerce Commission, the Securities and Exchange Commission, the Civil Aeronautics Board, and the Federal Maritime Commission. The Report notes at the outset that it is now almost routine practice to condemn the commissions for a lack of resourcefulness, insensitivity, and for a general inability to respond effectively to the pressing problems within the scope of their responsibilities.2 The Council then recommends several major changes in the structure of our regulatory system designed to tackle these failings. The Council's major recommendation, which it would apply to all agencies except the FCC, is to abolish the job of commissioner with a fixed term of office, and to substitute single administrators directly responsible to the President. In replacing collegial bodies with single heads, it would hope to increase efficiency and at the same time to strengthen Executive control over, and perhaps support for, agency policies. Moreover, the adjudicatory functions of the agencies would be de-emphasized. Agency chiefs would have only 30 days to review the decisions of hearing examiners; ordinarily, cases would proceed directly to a new Administrative Court, composed of specialized judges appointed for fifteen-year terms. Finally, the Report makes several detailed recommendations concerning individual agencies. It would merge the ICC, CAB, and FMC into a single transportation agency. It would transfer the CAB's promotional, subsidy-granting activities to the Department of Transportation. It would separate the FTC's consumer-protection responsibilities from its antitrust activities, and vest the latter in a new Federal Antitrust Board with a chairman and two economist members.3 It would transfer responsibility for the Public Utility Holding

Reply by David S. Schwartz to Kafoglis and Keig on "New Policies of the Federal Power Commission"

Reply by David S. Schwartz to Kafoglis and Keig on "New Policies of the Federal Power Commission"

The Effectiveness of Regulation of Electric Utility Prices

The objective of this study is to measure the effectiveness of the regulatory process in reducing prices to residential users of electrical utilities. In it, the marginal cost for 62 private electric companies and 7 municipal ones are computed and the demand curves facing them are estimated. From these curves the profit-maximizing prices, p,, are estimated and compared with the actual prices charged to indicate the effectiveness of regulation. Short run marginal cost is estimated using Federal Power Commission cross sectional

Prevention of Power Failures in Major Networks

An outline of the philosophy underlying the Federal Power Commission's study of the reliability of electric power systems and their distribution networks is presented. A broad review of bulk power system reliability is given. The steps required for the prevention of major power outages of wide extent and substantial duration are set forth.

The Effectiveness of the Federal Power Commission

This paper takes the view that the Federal Power Commission dispenses services that have measurable economic benefits and imposes the costs of these services on both the regulated firms and the final consumers of gas and electricity. An attempt is made to define and measure benefits from regulation at the margin, where this margin has been chosen by the Commission via present rulemaking and surveillance activities. The costs of regulatory proceedings are estimated to include expenditures of the Federal Power Commission and other participants in the Commission's proceedings, and to include implied losses of final consumers consequent from regulatory delay. Benefits are compared to costs for each of the Commission's areas of responsibility, and the comparisons pose the question whether there ought to be more or less regulatory activity. The estimates here imply that the FPC is operating at a greater scale than net benefits warrant, particularly as a consequence of its ventures toward regulating natural gas production in the last decade.

New Policies of the Federal Power Commission

New Policies of the Federal Power Commission

Sedimentation of Reservoirs

It is well known that the useful life of reservoirs intended for irrigation, flood control and hydraulic developments is reduced by deposition of suspended sediment, bedload and bed material brought down by the rivers. In India the quantity of sediment deposit in reservoirs is generally assumed from the sediment observations carried out on the rivers in the planning stage. Broad aspects of sedimentation commonly used for prediction of the life of reservoirs have been dealt with. The method of determination of rate of sedimentation adopted by the Central Soil Mechanics Research Station, Central Water and Power Commission, has been described giving the technique of estimation of suspended sediment adopted in India. Also the role played by the bedload and unit weight of sediment is given along with the method of computation of sedimentation of reservoirs. The observed rate of sedimentation of reservoirs in India particularly of Bhakra, Maithon, Panchet, Hirakud, Mayrakshi, and Krishnarajasagar has been compared by actual sedimentation surveys carried out recently on each of them.

Subsurface Temperatures in South Louisiana: ABSTRACT

Subsurface-temperature observations, made by gas-producing companies in south Louisiana during the course of bottom-hole pressure determinations, were compiled on a magnetic tape by the Federal Power Commission. The measurements were taken long after the wells were completed, and they are therefore more nearly true than those taken during electric-logging operations. Reliable temperature versus depth plots could be made for 132 gas fields. The temperature End_Page 724------------------------------ gradients range from 1 to 2°F and most are between 1.2 and 1.3°F per 100 ft of depth. At a depth of 10,000 ft the temperature ranges between 190 and 230°F. The most prominent features of the temperature distribution at 10,000 ft is a of high temperature about 30 mi wide close to the present coastline. The location of this hot belt is puzzling because it is located approximately where the greatest thickness of Cenozoic sediments is believed to occur. Extrapolating the temperature and pressure downward, it seems possible that conditions necessary for regional metamorphism are present in the lower part of the sedimentary column at depths below 40,000 ft. Possibly the recrystallization of the sediments accounts for the high temperature values. End_of_Article - Last_Page 725------------

Subsurface Temperature in South Louisiana

Many subsurface temperature observations from South Louisiana were obtained from the Federal Power Commission. Most of the measurements were made with calibrated maximum thermometers long after the wells had been completed. Temperature-depth curves could be obtained for 123 fields. The temperature gradients ranged from 18 to 36° C/km of depth; most were between 22 and 24° C/km. At a depth of 3,048 m (10,000 ft) there is a belt of high temperature near the present coastline. This hot belt is located approximately where the sedimentary strata are believed to be of maximum thickness, which is estimated to be about 15,000 m. It is suggested that metamorphism and recrystallization already have begun in the lowest part of the sedimentary section, and the consequent increased thermal conductivity may account for the high temperatures along the belt of maximum thickness.

The National Water Resource Assessment and Regional Framework Plans

Title I of the act establishes the Water Resources Council, a cabinetlevel group, which includes the secretaries of the departments with an interest in water and related land resources and the chairman of the Federal Power Commission. The Council members meet at least quarterly to consider major policy issues. The representatives of the members meet frequently to carry out the Council's policy directives and to perform the functions of the Council which are not reserved to the members. At the national level, the Council staff works with three administrative and four technical committees in performing the supporting staff work for the Council. Examples of the work performed by these committees are coordination of budgets, guidelines for planning studies, uniform technique for computing flood flow frequencies, review of proposed federal-state compacts, cost-sharing policy, flood-plain management, and review of comprehensive plans. Federal-state river basin commissions have been organized for the Pacific Northwest, the Great Lakes, the Souris-Red-Rainy, and the New England regions. These commissions, operating under joint federal-state agreement as provided in Title II of the act, are preparing comprehensive plans for their regions. They also coordinate water and related land resources activities. Commission staffs are jointly supported by the Council and the member states. In addition, the Council has under its aegis 4 continuing federal-state river basin committees for major regions and 18 ad

Regulation of the Field Market for Natural Gas by the Federal Power Commission

Regulation of the Field Market for Natural Gas by the Federal Power Commission

AN ANALYSIS OF THE USE OF COST-OF-CAPITAL CONCEPTS IN NATURAL-GAS-PIPELINE RATE REGULATION*

THIS STUDY WAS UNDERTAKEN as an inductive investigation of the cost-of-capital concept as it has been used for rate-making purposes by the Federal Power Commission and the firms coming under its jurisdiction. It covers the period from 1938, the first year of Federal Power Commission regulation of natural-gas-pipeline companies, through 1963. Initially the study surveys the theoretical literature of the cost of capital. This survey covers both the general theory and special aspects related to natural-gas rate regulation. Next the concepts of the cost of capital developed by the Commission and the pipeline companies are summarized and compared. The discussion focuses on major historical trends in conceptual thought and on present points of view. Commission opinions proved to be the main source of information for this part of the study. It is found that the positions of the Commission and the companies regarding the cost of debt and preferred stock are quite similar. They tend to accept the historical cost of senior securities as the proper cost, although the companies at times did attempt to gain acceptance of the current effective rate. Neither the Commission nor any of the companies indicated that increased financial risk because of senior securities might cause the cost of common stock to rise. There is considerable disagreement between the Commission and the companies, and among the companies themselves, concerning the proper method of determining the cost of common-stock equity. However, all parties agreed that the cost of retained earnings should be the same as the cost of common stock. The Commission has steadfastly used earnings-price ratios, calculated on the basis of current earnings, as its primary determinant. Since 1952, the companies have generally used concepts emphasizing future earnings or dividends, with the incorporation of projected future earnings in the earnings-price relationship being most common. The response of the Commission to the newer concepts advanced by the companies is noted in the study. This should assist pipeline companies in their attempt to develop concepts to which the Commission might respond favorably. To illustrate the extent of agreement or disagreement, a detailed analysis of a typical rate-case proceeding is included as an appendix to the study. None of the cost-determination techniques used by the Commission or the companies is completely satisfactory when measured against those stressed in the theoretical literature of today. None of those techniques seems to take into account the opportunity cost of capital funds. However, those espoused by the companies generally do take into account the fact that investors are interested in future returns when they purchase securities. The Commission has continually refused to prognosticate future dividends or earnings. Its concepts, therefore, deviate from those in the theoretical literature which clearly indicate that, to be academically respectable, theories must incorporate future expectations.

A PRELIMINARY ESTIMATE OF THE ICE-SEASON ENERGY BALANCE FOR THE NIAGARA RIVER

Summary The Meteorological Service of Canada and the Ontario Hydro-Electric Power Commission are conducting an International Hydrologic Decade study of ice formation and dissipation on the upper Niagara River. As a contribution to this project, an estimate of the energy balance of the river has been made, based on long term climatological data and on hydrological observations obtained during the 1967 ice season. This paper discusses the magnitudes of various terms in the energy balance equation and suggests applications of the energy budget approach to problems of ice forecasting.

An Economic Analysis of the Federal Power Commission's Decision in the Permian Basin Area Rate Proceeding

T HE FEDERAL POWER COMMISSION handed down the opinion and decision in the Permian Basin natural gas rate proceedings on August 5, 1965. The significance of the opinion is twofold. First, the Commission abandoned the case-bycase approach in establishing natural gas rates in favor of a dual rate structure for all Permian Basin producers. Second, for the first time a just and reasonable minimum and maximum na-

Major Pumped Storage Projects in the United States

Pumped storage hydroelectric projects are assuming an important role in the supply of electric power in the United States. Their operating characteristics are ideally suited for serving peak power loads, and to complement the base load power being derived from today's large efficient fossil and nuclear fueled steam-electric plants. Development of the reversible pump turbine has enhanced the feasibility of pumped storage projects. Six major projects have been placed in operation since 1961; seven are under construction; and applications for 10 projects are pending before the Federal Power Commission. The pumped storage capacity of these installations totals more than 12,000,000 kw. Large amounts of new peaking capacity will be needed in supplying the country's growing electric power loads. Much of this capacity will be provided through development of pumped storage hydroelectric projects at the many favorable sites that are available. Plans for developing a number of new sites are already under way.

The Federal Power Commission and Pipeline Markets: How Much Competition?

The Federal Power Commission and Pipeline Markets: How Much Competition?

Prevention of power failuresߞThe FPC report of 1967

Twenty months after the Northeast blackout of November 9-10, 1965, the Federal Power Commission issued its three-volume report calling for the co-ordinated planning and operation of bulk power supply facilities to ensure maximum possible reliability and the prevention of future cascading tripouts and regional power failures. These and related guidelines are contained in 34 recommendations. As would be expected, the power industry, after evaluating this comprehensive report, may have some disparate reactions. A small sampling of these reactions by three investor-owned utilitiesߞand a federal systemߞis herein presented.

Obtaining Boiler Fuel Gas to Reduce Air Pollution: The Policy of the Federal Power Commission

Public utilities, particularly those operating steam-electric generating plants, contribute substantially to atmospheric pollution. The extent of their contributions may be affected in any given instance by the location of the plant, the type of generating unit, the particular fuel or fuels burned, the existence of pollution control equipment, and the scheduling of particular fuels in multi-fuel plants. One or more of these factors may fall within the purview of regulatory agencies of the federal, state, and local governments. This article deals with an aspect of utilities regulation of particular importance: the jurisdiction of the Federal Power Commission (FPC) over the use by steam-electric generating utilities of natural gas for boiler fuel, for the purpose of reducing air pollution produced by burning alternative fuels. In I938 the FPC was given responsibility for administering the federal part of a comprehensive federal-state regulatory scheme intended to assure that natural gas, a wasting asset, would be allocated to uses consistent with the public interest at minimum cost to the consumer. Through the years this broad directive has been narrowed to an inquiry into particular criteria which purport to embody the public interest. Attempts in recent years to add to this list of criteria the impact of a requested fuel use change on air pollution have met with less than complete success. The problem sought to be mitigated by these attempts-utilities' contributions to atmospheric pollution-is not likely to be solved in the immediate future other than by increased allocations of gas to replace coal and oil as boiler fuel. However, other solutions, particularly nuclear power generation, are visible somewhat further ahead. Consequently, until these alternative solutions are found or implemented, it is likely that increasing pressure will be brought to bear upon the Commission to certificate boiler fuel gas. Where certification can be shown to have a significant impact on air pollution, such pressure may ultimately result in a reversal of the Commission's present unreceptiveness to air pollution arguments.