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Competition as a Complement to Regulation

Richard P. Rozek

Year: 1985
Volume: Volume 6
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No3-6
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Abstract:
Competition and regulation are often perceived to be in conflict, because regulation usually evolves in response to a failure of the market system. In the case of public utilities in the United States, the familiar argument is that production scale economies make it cheaper for a single firm to provide essential products or services than for two or more firms to do so. To take advantage of the production efficiencies but avoid the resource allocation problems inherent in monopoly levels of price and output, either assets are publicly owned or a privately owned firm is regulated.' In the first case, the incentive to maximize profits is replaced by the need to maximize political support.' Thus the price charged for output is less than the monopoly price. In the second case, states have created public utility commissions (PUCs) to control both access to the market and the monopolist's price and output decisions.



Price Discrimination Limits in Relation to the Death Spiral

J. Stephen Henderson

Year: 1986
Volume: Volume 7
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-3
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Abstract:
It is well known that a public utility commission may be able to improve overall social welfare by allowing decreasing-cost industries (such as local public utilities) to price discriminate. For this course of action to be practical, the following conditions must prevail: (1) marginal-cost prices do not cover costs and (2) external subsidies are not feasible. Consequently, the need to raise prices above marginal costs means that some social welfare, measured as the sum of consumer's and producer's surplus, for example, must be sacrificed to allow the utility to break even. To minimize this sacrifice, the proportional deviation of price from marginal cost for each service should be correspondingly larger for markets with inelastic demands than for those in which demand is elastic.' This type of inverse elasticity rule seldom is used in practice and is cited here only to illustrate that pure value-of-service pricing may improve overall social welfare.



An Econometric Analysis of Energy Financing

John B. Guerard, Jr. and Stephen G. Buell

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-5
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Abstract:
This study examines the interdependencies of the dividend, investment, liquidity, and financing decisions of public utility firms during the 1974-1979 period and develops a multiple-criteria financial planning model of a public utility firm. The evidence on the perfect markets hypothesis that the dividend, investment, and new debt decisions of firms are interdependent is mixed. The perfect markets hypothesis is tested using a sample of public utility firms because utility firms pay very high dividends (relative to stock prices) and engage in large capital expenditures (relative to assets) compared with manufacturing firms.



Who Pays for Retail Electric Deregulation? Evidence of Cross-Subsidization from Complete Bill Data

Noah Dormady, Matthew Hoyt, Alfredo Roa-Henriquez, and William Welch

Year: 2019
Volume: Volume 40
Number: Number 2
DOI: 10.5547/01956574.40.2.ndor
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Abstract:
Retail electric deregulation has been identified in the literature to have favorable price impacts to businesses and households because of the introduction of competition into rate-setting. Those studies often ignore the important role of regulatory intervention. They are also generally national or multi-state aggregated studies that ignore state- and utility-specific dynamics, and most rely on Energy Information Administration (EIA) price data that does not account for riders and surcharges on consumer bills, which can total more than 60 percent of bills. Using a unique panel of representative, complete electricity bill data from the Public Utilities Commission of Ohio (PUCO), this paper provides a multi-utility panel regression analysis of the effect of retail deregulation on total electric bills in Ohio. The results identify two main sources of cross-subsidization that have generally cancelled out the favorable effects of restructuring. Both types of cross-subsidies result in substantial burden shifts to residential consumers.





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