GOVERNMENT REGULATION OF BUSINESS
GOVERNMENT REGULATION OF BUSINESS ECON 4333
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This 5 page Class Notes was uploaded by Moshe Fritsch on Friday October 2, 2015. The Class Notes belongs to ECON 4333 at Arkansas State University taught by Staff in Fall. Since its upload, it has received 41 views. For similar materials see /class/217735/econ-4333-arkansas-state-university in Economcs at Arkansas State University.
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Date Created: 10/02/15
Notice to students enrolled in ECON 4333 This document was prepared by Dr Bill Belovicz Dr Belovicz served as Chief Economist to the Arkansas Public Service Commission for 9 years He served as a Visiting faculty member at Arkansas State University in the Spring semester of 2001 Dr Belovicz prepared this document to give students enrolled in Government Regulation of Business an overview of deregulation or what Dr Belovicz terms reregulation in the electric utility industry Be advised that Dr Belovicz participated in a chatVirtual classroom with students on April 11 2001 You can read this chat at the Blackboard web go the virtual classroom archives a m I Bill Belovicz March 28 2001 Electric Regulation To Deregulation Reregulation To 7 Characteristic Regulated Deregulated Competitive Goals or Issue Service Allocated by State Regulatory Compete for customers for energy Territory Body element and other services declared competitive Structure of Generation transmission Generation transmission and Industry distribution billing customer distribution separated Goal is to service etc vertically integrated make generation competitive within jurisdiction Investor Owned Transmission still regulated by FERC Utilities operate control centers but new forms of regional transmission Regional cooperation accomplished control developing The California through Power Pools Also to some Independent System Operator ISO is degee between state jurisdictions one example Distribution and other Transmission regulated by the services not declared competitive still Federal Energy Regulatory regulated by state Commission FERC Rate Revenue Requirement model which Revenue Requirement model applies Determination is an effort to simulate competitive to distribution and other pricing The model is Revenue Requirement Rate Base Allowable Rate of Return Expenses developed from a weather normalized test year The overall revenue requirement is then allocated to the di erent rate classes Variances from these tari s are treated as special contracts or newly adjusted tari s requiring state regulatory body approval This model applies to the nonenergy portion of the bill Energy costs are passed through to the end user State regulatory body approves investment and policies which affect energy costs noncompetitive service expenses Transmission component would be dependent on form of transmission coordination Energy becomes competitive Stranded Cost When state regulatory bodies approved investment eg a nuclear plant they authorized rates which would be expected to recover costs under normal circumstances This is referred to as the Regulatory Compact Deregulation would require separation of the generation transmission and distribution components Divestiture of generation or transmission could result in unrecovered costs at the time of divestiture This is referred to as stranded costs How do you make the utility whole if you accept the Regulatory Compact concept Auctions appraisal and market studies are several approaches Market Power Not an issue since regulated E ective competition requires that no party be able to manipulate the market controlling the price and quantity outcomes Should the distribution utility be allowed to own any generation What rules should govern their relationship with a iliated companies How do you measure market power This issue currently at core of California arguments Price e ects on states Wide variation in rates paid by state Because of state jurisdiction states and regions tended to keep their own energy or import under other determined market conditions The Northwest had low cost hydro Eastern state had higher costs of production Arkansas was about average for the country Would expect prices to tend to equalize within constraint of transmission and other transactions costs Opportunities and risks for large users Required individual treatment through rate case or variance Use market While not necessarily knowledgeable about the energy market may have some experience in nancial and other commodity markets Conversant with risk issues 39 Can hedge and do forward planning Often have a fairly constant rate of energy use over the day and year Referred to as a high load factor Similar to load factor for airlines which is the average percent of plane capacity actually booked Opportunities and risks for small users Price taker with no options other than amount of energy consumed Don t know the energy component cost until bill arrives Stability important Can expect to receive offers pretty much as we now do for telecommunications The Ohio Public Utility Commission has a web site for comparing gas prices which they have deregulated The site is called Apples toApples Consumers can lock in the energy rate for one or two years or choose a variable market price Several companies have developed programs with which consumers can receive a guaranteed total annual bill which is independent of weather uctuation Consumer education is a major issue in this ea California Required that their investor owned utilities auction o their generation Put a price cap on generation energy which guaranteed a 10 percent reduction in residential bills Average California residential bill had been 50 to 60 Has refuse to approve plant additions for about 10 years Put cap on wholesale prices utilities could pay for imported energy which was below market In the last year denied a request by PGampE I think to increase their future purchases of energy at a xed price Recently used an Emergency Powers Act to con scate relatively low priced xed price contracts from investor owned utilities This was done to allow the state to purchase energy at less than the current market Market power issues have been raised and several inquiries conducted and ongoing regarding generator owners withholding power to manipulate prices ISO establishes price with the following rule all transactions conducted during an hour will clear at the price of the last transaction for that hour During the last week the California Legislature and the Utility Commission have recommended residential rate increases totaling 65 percent They are in the process of determining how quickly to phase them in