Public Utility Regulation Research Articles

Regulating Utility Rates of Return: the Case of the Ontario Natural Gas Sector

While the regulation of public utilities is a widely accepted form of government intervention in the market economy, there are few empirical studies of the effectiveness of one of their key components: the setting of an allowed rate of return. Using the Ontario natural gas sector as a case study, this article examines the effectiveness of utility regulation in setting a market rate of return and concludes that despite market rate objectives, natural gas utilities in Ontario have consistently earned above-market returns. Several mitigative factors are examined, including a proposal to increase competition through deregulation.

Political Economy of Fairness

Part 1 Basic economic concepts and ideas: introduction and overview the concept of economic efficiency more economic concepts externalities and public goods on firms (private or public organizations) risk and incentives - principal-agent theory. Part 2 Fairness theory: a brief intellectual history of the economist's current ethical outlook normative theories I - John Rawls normative theories II - Robert Nozick, utilitarianism and superfairness positive theories I - the formal principle of distributive justice and institutional framing positive theories II - perceived economic justice in public utility regulation strategic uses of fairness. Part 3 Normative and positive economic theories of regulation: public interest (normative) economic theories of regulation interest group (positive) economic theories of regulation - incentive-compatible regulation. Part 4 Case studies and applications: introduction to part 4 progressive taxation unfair pricing I - cross-subsidization unfair pricing II - predatory pricing and dumping - whose ox is being gored? evaluating assets fairly - the example of public utility the supreme court's struggle with mergers and breakups attempts to break out of the regulatory straitjacket, fairly social regulation - a medley of the power of the media, efficiency, utilitarianism and individual rights.

The politics of requesting: Strategic behavior and public utility regulation

Extant models of public utility regulation assume that regulated firms make the same rate adjustment requests regardless of the political environment they will face during the rate case. Focusing on information asymmetries, the repeated interaction between the firm and the regulatory commission, and behavioral assumptions about the goals of regulators, a new model is proposed that assumes firms strategically and rationally plan their requests to respond to political and agency, as well as standard economic factors. An implication of the new model is that the effect of political factors, such as grassroots advocacy and regulator election, should be observed in request equations rather than in award equations where they are traditionally sought. This new model is tested using data from 54 telephone rate cases. The results indicate that firms do respond strategically to political factors (especially to regulator elections), and also to agency factors (such as workload), by increasing their requests. This partially explains a puzzling result in the literature and has implications for regulatory policy, interest group behavior, democratic institutions, and public management.

The politics of requesting: Strategic behavior and public utility regulation

Extant models of public utility regulation assume that regulated firms make the same rate adjustment requests regardless of the political environment they will face during the rate case. Focusing on information asymmetries, the repeated interaction between the firm and the regulatory commission, and behavioral assumptions about the goals of regulators, a new model is proposed that assumes firms strategically and rationally plan their requests to respond to political and agency, as well as standard economic factors. An implication of the new model is that the effect of political factors, such as grassroots advocacy and regulator election, should be observed in request equations rather than in award equations where they are traditionally sought. This new model is tested using data from 54 telephone rate cases. The results indicate that firms do respond strategically to political factors (especially to regulator elections), and also to agency factors (such as workload), by increasing their requests. This partially explains a puzzling result in the literature and has implications for regulatory policy, interest group behavior, democratic institutions, and public management.

Common Carriers, Public Utilities and Competition

What are the implications of the introduction of competition for public utility companies and regulators? To date, research has been restricted to stranded investment and the pricing of access for competitors. This paper examines how the public policy obligations traditionally placed on public utilities must change as competition is introduced, discussing the extent to which former public utility firms need to retain obligations after competition. Since the public utility concept has been tied closely to the common law concept of common carriage, the paper also examines common carriage rules as an alternative to public utility rules in competitive markets. Copyright 1996 by Oxford University Press.

Regulation and administered contracts revisited: Lessons from transaction-cost economics for public utility regulation

This article reexamines the administered contracts approach to regulation in light of recent empirical research that establishes the importance of transaction-costs in the organizational choice and design decisions. After reviewing the fundamentals of transaction cost reasoning and the franchise bidding-versus-regulation debate, the study surveys the empirical literature on franchise bidding, contracting, and vertical integration. The implications of transaction-cost theories for current policies toward pubic utility regulation and deregulation are also addressed.

Is the Public Utility Concept Obsolete?

Public utility regulation is a uniquely American structural innovation, and has evoked ambivalence on the part of the public, and more particularly the economics profession, over the years. Almost from the time of its inception, diverse voices have sounded its death knell. While many of the early critics of regulation, irrespective of philosophic bent, recognized that inherent structural conditions preclude the emergence of competition, contemporary critics urge that regulation be eliminated and replaced with competition or a competitive surrogate. The paper examines the opposing viewpoints and current proposals for regulatory reform within the context of contemporary structural conditions.

Public utility regulation and bond ratings

This paper investigates the extent to which political factors, which vary across state Public Utility Commissions, affect electric utility bond ratings. The paper focuses on the effects of the commissioner selection method (election or appointment) and other politically determined variables on bond ratings of privately owned and regulated electric utilities. The paper develops a generalization of ordered logit that allows the latent risk measure to have a skewed and thicktailed distribution. The distributional assumption underlying the standard logit model is strongly rejected. Empirically, both political variables and financial variables are determinants of electric utility bond ratings, and election of the PUC has a strong negative effect on bond ratings.

John Ernst, Whose Utility? The Social Impact of Public Utility Privatization and Regulation in Britain., Open University Press, Buckingham, 1994, x + 225 pp. paper £15.99. - Peter Saunders and Colin Harris, Privatization and Popular Capitalism, Open University Press, Buckingham, 1994, vi + 181 pp., hard £37.50 paper £12.99.

John Ernst, Whose Utility? The Social Impact of Public Utility Privatization and Regulation in Britain., Open University Press, Buckingham, 1994, x + 225 pp. paper £15.99. - Peter Saunders and Colin Harris, Privatization and Popular Capitalism, Open University Press, Buckingham, 1994, vi + 181 pp., hard £37.50 paper £12.99.

Behind the Revolving Door: A New View of Public Utility Regulation

Regulatory officials frequently work for firms they regulate after they leave office. This revolving door has been the subject of much scrutiny owing to the natural suspicion of corruption. In a time-dependent supergame, I take a strategic look behind the revolving door and find it can lead to improved performance of regulated industries. When firm managers and regulators have finite and concurrent terms, investment incentives are minimal. Staggered terms and revolving doors can result in improved performance of regulated firms when each side's actions at each date are contingent on past outcomes.

Current Issues in Industrial Economics

Introduction and overview - recent developments in industrial economics, J. Cable economics of the firm, G. Stewart alternative forms of productive enterprise, S. Estrin conjectural variations, C. Fraser oligopoly and welfare, J. Cable et al models of product differentiation, M. Waterson entry and market share mobility, P. Geroski strategic research and development and innovation, J. Beath et al recent developments in the economics of public utility regulation, T. Weyman-Jones linear and non-linear models of economic time series - an introduction, D. Byers and D. Peel.

Revisiting Regional Regulation of Public Utilities

Revisiting Regional Regulation of Public Utilities

The origins of US public utilities regulation: elements for a social history of networks

The origins of US public utilities regulation: elements for a social history of networks

The Origins of Utility Regulation and the "Theories of Regulation" Debate

In this article, the author attempts to show that the effort to ascribe regulatory effects to a theory largely deflects attention from the dynamic relationships between the regulator and the regulated firm or industry played out most frequently within a long-term relationship closely resembling more familiar forms of long-term contracts. The focus on regulation by commission is misguided and the differences between regulation by commission and by other regulatory techniques are less important than has been appreciated. The author's examination of the history of public utility regulation makes impossible any clear-cut distinction between competing public interest and private interest theories.

The origins of US public utilities regulation: elements for a social history of networks

Jean-Paul SIMON, The origins of US public utilities regulation: elements for a social history of netivorks. This paper deals with the genesis of the regulation of public utilities in the United States. It focuses on the complex interaction among corporate actors, branches of the government (Congress and the courts) and small and large users that led to a dual regulatory system (anti-trust laws/independant commissions). Regulation is seen as both a compromise between conflicting interests (shareholders, users, governments, management) and as a trade-off between government intervention (to protect users) and the establishment of a legal monopoly for private firms (to secure growth).

Energy Intervention After Desert Storm: Some Unfinished Tasks

Without fanfare, the U.S. government removed many intrusive regulations affecting oil and gas. Much further remains to be done. Regulation of environmental problems and public utilities remains deficient. Special attention is needed to the enthusiasm over the actual U.S. oil stockpiling program and proposed oil-import taxes. The arguments that oil is particularly insecure, that the insecurity produces severe macroeconomic damages, and that oil market policies are the best response are all dubious. In particular, design of such intervention is even more difficult than implementing traditional monetary and fiscal policy. International trade economics warns of the perils of taxing to create or offset monopoly. Stockpiling also is designed to offset the disincentives to private stockpiling created by the tendency to impose price controls during crises. The fear of windfall profits that inspires price controls also discourages stockpile release. Stockpiling thus may not prove helpful. The U.S. establishes goals for its public lands more ambitious than can be attained with the budgets allocated for administration. Reversing the retreat from encouraging sales to the private sector could improve land use.

The uses and abuses of stand-alone costs

Stand-alone cost (SAC) is the cost of providing one service (or group of services) o f a multiproduct fiirm on its (their) own, without producing any of the firm's other services. This paper spellsout the proper use of stand-alone cost in public utility regulation and also notes some of the more common abuses of the SAC concept. The proper use is as a test for sources of cross-subsidy. Common abuses include: using SAC to allocate shared costs; use of incorrect or incomplete sets of criteria in testing for cross-subsidies; and using SAC when incremental cost should really be used.

Utility investment behavior and the emission trading market

The Clean Air Act Amendments of 1990 require electric utilities to reduce sulfur dioxide emissions and establishes a system of tradeable emission allowances to achieve this objective. This paper develops a model of utility investment decisionmaking that shows how regulatory rules will affect the utility's incentive to choose among different compliance strategies. The results of the model are extended to the overall market for emission allowances to show how the benefits from trading can be affected by regulatory rules. The analysis provides guidance for public utility regulation that will help achieve the social objective of minimizing the cost of pollution control.

Least cost planning generally and DSM in particular

This paper assesses the increasing tendency of public utility regulators in the 1980s to require utility companies to practice ‘least cost planning’ and in particular to treat demand side conservation measures on a parity with expansion of supply. It discusses the magnitude and causes of the persistence of unexploited opportunities for efficient conservation. Its principal conclusions are that subsidies for conservation should be limited to the extent to which the marginal cost of electricity supply exceeds the price, and that conservation programs should minimize the cross-subsidization of participants by non-participants.

Commitment in regulation: Defense contracting and extensions to price caps

Department of Defense regulation of weapons contracting uses incentive devices common to public utility regulation. This paper examines parallels between fixed-price contracts in weapons acquisition and the use of price caps to motivate public utilities. It uses defense contracting experience to identify limits to the efficiency and administrability benefits one can expect adoption of a price caps regime to produce in practice.