Electric Utility Regulation Research Articles

State Electric Utility Regulation: Financial Issues, Influences, and Trends

State regulatory agencies control utilities that produce over three fourths of the electricity in the United States. Thus, state regulation is a dominant instrument of energy policy. Electric utility regulation had acquired most of its present practices and grown resistant to change by the early 1950s. When the economic environment shifted radically after 1965, regulators found it hard to adapt their institutions to a new era. This review outlines the topics of electric utility regulation and finance, discusses the benign era in which they matured, describes the events and difficulties of the last 20 years, and spells out the challenges still facing regulators and utility managers. In conclusion, it indicates what the authors believe the future holds for utilities and regulation.

Regulation of gas and electric utilities in the USA

There are many misconceptions in Europe, and indeed in the USA, on the effect US utility regulators have upon the ability of utility managers to manage, and the role these regulators play in encouraging energy efficiency. The system of utility regulation practised in the USA has been characterized by some commentators as one that is overlegislative, bureaucratic and overgrown. In view of the forthcoming privatization of the British Gas Corporation in the UK, it is vital that the correct lessons be drawn from the US experience - the widest experience of regulating privately owned energy utilities in the Western world.

State Electric Utility Regulation: Financial Issues, Influences, and Trends

State Electric Utility Regulation: Financial Issues, Influences, and Trends

Reforming the Regulation of Electric Utilities

Reforming the Regulation of Electric Utilities

Reforming regulation of electric utilities in the USA Priorities for the 1980s

The electric utility industry in the USA has been forced to face its transition to an era of slower growth while dealing with an increasingly extensive, complex and rigid regulatory framework. Traditional ‘public utility’ regulation is ill-suited to a period of radical change. The addition of environmental regulations, more stringent controls on nuclear power, and in some states separate energy policy agencies has aggravated the task. This article explains this problem and calls for radical reform, preferably placing more reliance on market forces.

Demand Uncertainty and the Regulated Firm

In this paper, we investigate the impact of demand uncertainty on the choice of plant capacity by a regulated firm. Over the past few years, demand uncertainty has become a major element in the decision-making of utilities, and particularly in their decision-making with respect to capacity choices. In a recent study by SRI [1977], it was reported that to maximize expected consumers' surplus, more generating capacity was required for the electric utility industry when operating under demand uncertainty than under demand certainty.1 This finding raises the question whether the structure of rate regulation of electric utilities provides the appropriate incentives for them to invest in more capacity under demand uncertainty then under certainty. The present paper addresses such questions. The model of the regulated firm that is employed in this paper derives from the work of Joskow [1974] concerning the recent history of rate regulation in the electric utility industry. Briefly, Joskow reported that during the 1960s and the early 1970s, the impetus for rate reviews in the electric utility industry came mainly from the utilities and not from the public utility commissions (PUC's). Joskow's findings are corroborated by data for the period 1948-1978. A study of all rate cases involving electric utilities in the U.S. for that period shows that of a total of 363 cases, 350 of these were instances of utility-initiated rate reviews and only 13 were cases of PUC-initiated reviews.2 From the point-of-view of the formal theory of the regulated firm, this strongly suggests that the Averch-Johnson model of a firm operating at or near an rate of return constraint (with the allowed rate of return being in excess of the cost of capital to the firm) should be replaced by a model of price regulation in which attention is shifted to the non-negativity of profits constraint, or, at least, this should be done with respect to the electric utility industry. With some elaborations, this is basically what we do in this paper, building on the approach adopted in a recent paper on a related topic.3

INFLATION RISK AND REGULATORY LAG

Rate of return regulation in principle suggests strong linkages betwen interest rates, utility return on book equity (ROE), and stock price/book equity ratios: ceteris paribus, changes in interest rates should be quickly transformed into changes in ROEs, and stock prices should tend toward book value. Absent lags in the process, it also suggests that utility investors are minimally exposed to the risks of unanticipated changes in interest rates, notably those associated with inflation. In this paper we examine the financial implications of electric utility regulation from 1971-1980. Over this period, which was characterized by inflation-related rises in interest rates, we flnd that the gap between allowed and earned ROEs, on the one hand, and interest rates, on the other hand, increased. Since this outcome is in contradiction of the conceptual model of regulation and investors' exposure to inflation risk, we test the hypothesis that investors respond to the reality of regulation by imposing risk premiums which are functionally related to interest rates. The basic idea is that an ROE shortfall leads to an expectation that regulation will respond in the future with a higher earnings level, but this IOU in the implicit social contract is risky. And the question addressed in this paper is whether the degree of riskiness is related to the level of interest rates. Using two valuation models we conclude that at least during the 1970s risk premiums were not related to the level of interest rates.

Antitrust and electric utility regulation

Antitrust and electric utility regulation

Determinants of the effectiveness of electric utility regulation

Two questions are addressed in this analysis: ‘Does regulation really affect the operation of privately owned electric utilities?’ and ‘What attributes of public utility commissions lead to more effective regulation?’. Our results indicate that regulation does prevent the complete exploitation of monopoly power since average residential prices are only two-thirds of their long-run profit-maximizing level. But regulation is far from perfect: some economic rents are earned by the utilities in our sample and there is a potential for some small consumer surplus gains from more efficient rate structures. Not surprisingly, commissions with more resources provide more effective regulation. Commissioners with longer terms of office allow higher residential rates, possibly because their longer terms of office allow them to become more insulated from public scrutiny. Finally, firm size has a complicated effect. Average rates for large firm's residential customers are further below their preferred level than for smaller firms, perhaps because of the payoff to a commissioner from championing the cause of a large block of voters. However, larger firms still earn greater economic rents, due to cross-subsidization from industrial and commercial customers, and economies of scale in presenting rate cases.

LITERATURE REVIEWS

BOOK REVIEW ESSAY Stephen Breyer, Regulation and Its Reform Kenneth W. Clarkson and Timothy J. Muris, eds., The Federal Trade Commission Since 1970: Economic Regulation and Bureaucratic Behavior Susan M. Phillips and J. Richard Zecher, The SEC and the Public Interest BOOK REVIEWS Robert G. Healy and James L. Short, The Market for Rural Land – Trends. Issues, Policies John J. Kirlin, The Political Economy of Fiscal Limits T. J. Pempel, Policy and Politics in Japan: Creative Conservatism Forest W. Horton and Donald A. Marchand, eds., Information Management in Public Administration BOOKNOTES L. H. Gann and Peter Duignan, Africa South of the Sahara: The Challenge To Western Security Peter Duignan and L. H. Gann, The Middle East and North Africa: The Chaknge to Western Security Rosalie L. Tung, U.S.‐China Trade Negotiations Richard L. Gordon, Reforming the Regulation of Electric Utilities

The Demand for State Regulation of the Electric Utility Industry

The theory that the public interest is best served by state regulation of electric utilities is examined by studying its effect on electricity charges and utility profits and by comparing it with the opposing theory that regulation replaces public for private monopoly. Empirical evidence is presented to show that early state regulation favored the producer in that states having competitive electric power markets were the first to be regulated and that prices and profits began rising after state regulation began. Arguments favoring the pro-producer interpretation cite the political power of utilities relative to consumers and the liberal granting of franchises to promote competition, which can also be intrepreted as a proconsumer policy. The shift from municipal to state regulation, however, is demonstrated to have been beneficial to utility interests.

The Effect of "Fair Value" Rate Base Valuation in Electric Utility Regulation

RATE REGULATION of electric utilities in the United States is accomplished using a rate of return on capital limitation. The firm is allowed to charge rates which are designed to produce no more than some specified return on its capital. During the course of setting rates there are several intermediate steps. The commission must determine the proper or fair rate of return, the depreciated capital or rate base to which the allowed rate of return is to be applied, the firm's current revenues, revenues under proposed new rates, and allowable expenses. Commission policies differ with regard to each of these areas of decision. One of the areas of greatest variability is the proper method of evaluating the rate base. Some commissions use original cost as recorded on the firm's books. Some commissions use reproduction cost (the cost of reproducing the firm's capital at current prices). Other commissions adopt a fair value of the rate base which lies somewhere between original cost and reproduction cost. In this case, the weights given to original cost as opposed to reproduction cost are a matter of judgment on the part of the commission. Two previous studies investigated the effects of commission rate base valuation procedures. Eitman [1] examined sixty Bell System rate cases between 1944 and 1959. He found that the allowed rate of return was lower in those states using a fair value rate base, but that when the allowed return was computed on the basis of the comparable original cost rate base, then the allowed return was significantly higher in fair value jurisdictions. That is, in such jurisdictions, the lower allowed return only partially offsets the larger rate base. Stuart [2] investigated eighty-five electric utility rate cases between 1944 and 1960, and reached similar conclusions. It is the objective of this paper to further consider the question of the effect of differing commission rate base valuation procedures. Eitman and Stuart's findings are now somewhat dated. They have the disadvantage of spanning a long period of tifne. It would be useful to consider a shorter time period which, presumably, would be less affected by legal, policy, and personnel changes. In addition, the Eitman and Stuart conclusions are subject to methodological criticisms. Both studies treat fair value rate cases as a single, homogeneous category. In actual fact, there are significant differences in commission practices in fair value jurisdictions. The ratio of fair value to original cost may vary from slightly greater than unity to

THE EFFECT OF “FAIR VALUE” RATE BASE VALUATION IN ELECTRIC UTILITY REGULATION

The Journal of FinanceVolume 31, Issue 5 p. 1487-1490 Note THE EFFECT OF “FAIR VALUE” RATE BASE VALUATION IN ELECTRIC UTILITY REGULATION H. Craig Petersen, H. Craig Petersen Utah State University.Search for more papers by this author H. Craig Petersen, H. Craig Petersen Utah State University.Search for more papers by this author First published: December 1976 https://doi.org/10.1111/j.1540-6261.1976.tb03227.x Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume31, Issue5December 1976Pages 1487-1490 RelatedInformation

Recent Developments in the Regulation of Electric Utilities

Recent Developments in the Regulation of Electric Utilities

Producer Protection, Prior Market Structure and the Effects of Government Regulation

THE direct economic regulation of business by independent government commissions has a one-hundred year history on the North American continent. The first state commissions having mandatory powers were established in Illinois and Minnesota in 1871,1 while the first federal regulatory commission in the United States, the Interstate Commerce Commission (ICC), was organized in 1887.2 In Canada, the earliest regulatory commission was the Board of Railway Commissioners, organized in 1903.3 It is generally asserted that the purpose of such commissions is to protect consumers from exploitation by limiting the economic powers of certain firms having pervasive effects on the public interest (for example, transportation companies and public utilities). Given this common purpose, one would expect some consistency in the actual economic effects of regulation by federal and state commissions. However, the findings of the relatively few empirical studies of the economic effects of regulation indicate that important differences actually do exist in these effects. For example, Stigler and Friedland concluded that the regulation of electric utilities by state commissions from 1907 through 1937 had no measurable impact on the level of electric utility rates, on the charging of discriminatory prices, and on the market

What Can Regulators Regulate? The Case of Electricity

What Can Regulators Regulate? The Case of Electricity

Competition or Control V: Production and Distribution of Electric Energy

* Prior installments in this series appeared in 106 U. PA. L. REV. 641 (1958) (public utilities generally); in 107 U. PA. L. REV. 585 (1959) (radio and television broadcasting); in 108 U. PA. L. REV. 775 (1960) (motor carriers); and in 109 U. PA. L. REV. 311 (1961) (air carriers). The present Article is based upon an examination of the Federal Power Act, various state power acts, and leading cases thereunder. The authors also made a page by page examination of volumes 38 through 100 of Public Utility Reports, New Series, and volumes 1 through 13, 21, and 27 through 31 of Public Utility Reports, Third Series. The authors gratefully acknowledge the assistance of W. P. Gilbert, Esq., of the Illinois bar, whose long experience in the law of electric utility regulation permitted him to eliminate several erroneous statements appearing in an earlier draft of this Article. t A.B. 1935, Yale University; LL.B. 1938, Harvard University; J.S.D. 1940, University of Chicago. Member, Illinois Bar. t A.B. 1940, Mount Holyoke College; M.A. 1946, American University. Lecturer in Economics, Lake Forest College. 1We do not consider questions with respect to the definition of public utilities. See, e.g., Boston Edison Co., 98 P.U.R. (n.s.) 427, 441, 443, 449, 459 (Mass. Dep't Pub. Util. 1953). 2 Federal Power Act, 41 Stat. 1063 (1920), as amended, 16 U.S.C. ?? 791a-825r (1958), as amended, 16 U.S.C. ??791a-823 (Supp. II, 1961). Section 19 of that act, 41 Stat. 1073 (1920), 16 U.S.C. ?812 (1958), provides for jurisdiction over rates and service of public utilities until state authority is exercised. The FPC also enjoys authority over interstate transmission of energy. 41 Stat. 1063 (1920), added by 49 Stat. 847 (1935), 16 U.S.C. ?? 824-824h (1958); see TROXEL, ECONOMICS OF PUBLIC UTILITIES 92-93 (1947); TWENTIETH CENTURY FUND, ELECTRIC POWER AND GOVERNMENT POLICY 196 (1948) [hereinafter cited as POWER AND POLICY]. The latter is a valuable survey of regulation of the electrical energy industry in action on which the authors of the present study have relied extensively. 3E.g., ILL. ANN. STAT. ch. 111%, ?? 1-344 (Smith-Hurd 1954). Comparable statutes in other states are described in POWER AND POLICY 54. State controls are not necessarily comprehensive. POWER AND POLICY 54; TROXEL, op. cit. supra note 2, at 74, 77. 4 JONES & BIGHAM, PRINCIPLES OF PUBLIC UTILITIES 166-67, 188-90, 619-22 (1931); POWER AND POLICY 106-16. It is generally considered that regulation by municipalities, particularly the smaller cities, is ineffective. POWER AND POLICY 107-08, 113, 116.

Electric Utility Regulation

Electric Utility Regulation

Value of Public Service Commission Control to Municipal Water Works Management

THE history of the Service Commission of Wisconsin, formerly called the Board of Railroad Commissioners, begins in 1874. In that year three commissioners were appointed by Gov. William R. Taylor in accordance with the provisions of Chapter 273 of the general laws of 1874, entitled An act relating to Railroads, Express and Telegraph Companies in the State of Wisconsin. Two years later the commission was reduced to a single member appointed by the governor, but in 1905 the three-man railroad commission was again established. In 1907 this commission took over the regulation of gas, electric, telephone and water utilities ; its jurisdiction was extended to include water power in 1915 and common carriers (motor) in 1927. Comprehensive truck and bus regulation was provided for in 1933. The name of the authority was changed to Public Service Commission of Wisconsin in 1931, when various amendments to the utility laws were passed.

The Origin and Development of the Public Utility Holding Company

Previous articleNext article No AccessThe Origin and Development of the Public Utility Holding CompanyNorman S. BuchananNorman S. Buchanan Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 44, Number 1Feb., 1936 Article DOIhttps://doi.org/10.1086/254883 Views: 5Total views on this site Citations: 13Citations are reported from Crossref PDF download Crossref reports the following articles citing this article:Eugene Kandel, Konstantin Kosenko, Randall Morck, Yishay Yafeh The great pyramids of America: A revised history of U.S. business groups, corporate ownership, and regulation, 1926–1950, Strategic Management Journal 40, no.55 (Dec 2018): 781–808.https://doi.org/10.1002/smj.2992William J. Hausman Howard Hopson’s billion dollar fraud: The rise and fall of associated gas & electric company, 1921–1940, Business History 60, no.33 (Jun 2017): 381–398.https://doi.org/10.1080/00076791.2017.1339690Carl T. Kitchens, Taylor Jaworski Ownership and the price of residential electricity: Evidence from the United States, 1935–1940, Explorations in Economic History 64 (Apr 2017): 53–61.https://doi.org/10.1016/j.eeh.2016.05.002Eugene Kandel, Konstantin Kosenko, Randall Morck, Yishay Yafeh The Great Pyramids of America: A Revised History of US Business Groups, Corporate Ownership and Regulation, 1930-1950, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2593797 Bibliography, (Nov 2011): 523–548.https://doi.org/10.1002/9781118192481.biblioRichard Carney The Domestic Political Origins of Global Financial Standards: The Agrarian Roots of American Securities Regulations, Business and Politics 13, no.33 (Jan 2017): 1–39.https://doi.org/10.2202/1469-3569.1360Steven A. Bank, Brian R. Cheffins The Corporate Pyramid Fable, Business History Review 84, no.33 (Apr 2011): 435–458.https://doi.org/10.1017/S0007680500002191Richard W. Carney Farmers and Capitalism, SSRN Electronic Journal (Jan 2008).https://doi.org/10.2139/ssrn.1016647Mary A. O'Sullivan Living with the U.S. Financial System: The Experiences of General Electric and Westinghouse Electric in the Last Century, Business History Review 80, no.44 (Apr 2017): 621–655.https://doi.org/10.2307/25097264William J. Hausman, John L. Neufeld The Market for Capital and the Origins of State Regulation of Electric Utilities in the United States, The Journal of Economic History 62, no.44 (Jan 2003): 1050–1073.https://doi.org/10.1017/S002205070200164XWilliam M. Emmons Franklin D. Roosevelt, Electric Utilities, and the Power of Competition, The Journal of Economic History 53, no.44 (Mar 2009): 880–907.https://doi.org/10.1017/S0022050700051354Leonard DeGraaf Corporate Liberalism and Electric Power System Planning in the 1920s, Business History Review 64, no.11 (Dec 2011): 1–31.https://doi.org/10.2307/3115843Patrick McGuire Instrumental Class Power and the Origin of Class-Based State Regulation in the U.S. Electric Utility Industry, Critical Sociology 16, no.2-32-3 (Jul 2016): 181–203.https://doi.org/10.1177/089692058901600210