Markets, Pricing, and Deregulation of Utilities PDF
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MARKETS, PRICING, AND DEREGULATION OF UTILITIES Topics in Regulatory Economics and Policy Series Michael A. Crew, Editor Centerfor Researchin RegulatedIndustries Graduate School ofManagement, Rutgers University Newark, NewJersey, U.S.A. Previously published books in the series: Crew, M., and Kleindorfer, P.R.: Managing Change in thePostalDeliveryIndustries Awerbuch,S. and Preston, A.: The Virtual Utility Gabel, D. andWeiman, D.: OpeningNetworks to Competition: TheRegulationandPricingofAccess Zaccour, G.: Deregulation ofElectric Utilities Young, W.: AtomicEnergy Costing Crew,M.: Regulation UnderIncreasing Competition Crew, M.A. and Kleindorfer, P. R.: EmergingCompetition inPostalandDeliveryServices Cherry, B.A.: The Crisis in Telecommunications CarrierLiability: HistoricalRegulatoryFlawsandRecommendedReform Loomis, D.G. and Taylor, L. D.: TheFutureofthe TelecommunicationsIndustry: ForecastingandDemandAnalysis Alleman,J. and Noam, E.: The NewInvestment Theory ofRealOptionsandits Implicationsfor TelecommunicationsEconomics Crew, M. and Kleindorfer, P. R: CurrentDirectionsinPostalReform Faruqui, A. and Eakin, K. Pricingin CompetitiveElectricityMarkets Lehman, D. E. andWeisman, D. L. The TelecommunicationsActof1996: The "Costs"ofManagedCompetition Crew, Michael A. ExpandingCompetition inRegulatedIndustries Crew, M. A. and Kleindorfer, P. R.: FutureDirectionsinPostalReform Loomis, D.G. andTaylor, L.D. ForecastingtheInternet: Understanding theExplosive Growth ofData Crew, M. A. andSchuh,J. C. Markets, Pricing, andDeregulationofUtilities Crew, M.A. and Kleindorfer, P.R. PostalandDeliveryServices: Pricing, Productivity,RegulationandStrategy MARKETS, PRICING, AND DEREGULATION OF UTILITIES edited by Michael A. Crew Center for Research in Regulated Industries Rutgers Business School Rutgers Dniversity Newark, New Jersey, D.S.A. and Joseph C. Schuh Center for Research in Regulated Industries Rutgers Business School Rutgers Dniversity Newark, New Jersey, D.S.A. Springer Science+Business Media, LLC Library of Congress Cataloging-in-Publication Data Markets, pricing, and deregulation of utilities / edited by Michael A. Crew and Joseph C. Schuh. p. CID. -- (Topics in regulatory economics and policy series) Based on two seminars held at the Center for Research in Regulated Industries, Rutgers on Oct. 26, 2001 and May 3, 2002. ISBN 978-1-4613-5283-9 ISBN 978-1-4615-0877-9 (eBook) DOI 10.1007/978-1-4615-0877-9 1. Public utilities--United States--Congresses. 2. Public utilities--Government policy--United States--Congresses. 1. Crew, Michael A. II. Schuh, J oseph C. ID. Center for Research in Regulated Industries (Rutgers University) N. Topics in regulatory economics and policy. HD2766 .M377 2002 363.6'0973--dc21 2002032066 Copyright © 2003 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 2003 Softcover reprint of the hardcover 1s t edition 2003 AH rights reserved. No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfIlming, recording, or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Printed on acid-free paper. CONTENTS Speakers and Discussants vii Sponsors ix Preface and Acknowledgements xi 1. Regulation Redux 1 MichaelA. CrewandPaulR. Kleindorfer 2. The NextStageofLocalTelephoneRegulatory Reform 27 Carl R. DannerandG. Mitchell Wilk 3. TheLong View ofDemand-SideManagementPrograms 53 AhmadFaruqui, Greg Wikler, andIngridBran 4. Determining the Competitiveness ofWholesaleElectricity Markets: 69 ItStarts with Defining the Markets DavidHunger 5. Metering in Electricity Markets: When is More Better? 87 JosephA. DoucetandAndrewN. Kleit 6. Regional Interactions in Electricity Prices in the Eastern 109 United States GregoryR. Leonard, James D. Reitzes, Adam C. Schumacher andJames G. Bohn 7. Auctions ofLastResort in Telecom and Energy Regulatory 143 Restructuring DavidJ. Salant 8. ShakeoutorShakedown?The Rise and Fall oftheCLEC Industry 161 Mark L. Burton, DavidL. Kaserman, andJohn Mayo 9. Public Safety as aPublic Good: Emergency 9-1-1 183 Menahem Spiegel 10. Universal Service 201 TimothyJ. Tardiff SPEAKERS AND DISCUSSANTS EricAckerman, Manager, Regulatory Policy, Edison Electric Institute Michael Ambrosio, Director - Energy and Telecommunications Group, Deloitte andTouche Michael A. Crew, Professor of Economics and Director - Center for Research and RegulatedIndustries, Rutgers Business School, Rutgers University Mark Beyer, Manager, Office of the Economist, New Jersey Board of Public Utilities Kent Currie, Cost Analysis and Regulatory, SBC Communications, Inc. Roger Camacho, Assistant Corporate Rate Counsel, PSE&G Richard N. Clarke, DirectorofEconomic Analysis, AT&T CarlDanner, Director, Wilk &Associates Ahmad Faruqui, VicePresident, Charles River Associates William Flynn, Senior Market Analyst, Market Monitoring Unit, PJM Interconnection StephenM. Friedlander, Manager- Law andGovernment Affairs, AT&T Kenneth Gordon, Senior Vice President and Special Consultant, National Economic Research Associates Fred Grygiel, ChiefEconomist, New Jersey BoardofPublic Utilities ConnieO. Hughes, Commissioner, New Jersey BoardofPublic Utilities David Hunger, Economist, Federal Energy Regulatory Commission Ahmed Kaloko, Director - Bureau Of Conservation, Economics & Energy Planning, PennsylvaniaPublic Utility Commission Mary Patricia Keefe, Vice President & Associate General Counsel, NUl Corporation Paul R. Kleindorfer, Universal Furniture Professor ofEconomics and Decision Sciences, Wharton School, University ofPennsylvania viii SPEAKERS AND DISCUSSANTS Andrew N. Kleit, Associate Professor of Energy, Environmental, and Mineral Economics, Penn State University ColinJ. Loxley, Director-ResourcePlanning, PSE&G John Mayo, ProfessorofEconomics, Georgetown University MichaelPelcovits, Vice President andChiefEconomist, MCI Worldcom Mark Reeder, ChiefofRegulatory Economics, New York State Department of Public Service James D. Reitzes, Principal, The Brattle Group Michael Rothkopf, Professor of Operations Research, RUTCOR, Rutgers BusinessSchool, Rutgers University David J. Salant, Senior Vice President, National Economic Research Associates Joseph C. Schuh, Assistant Professor of Finance and Associate Director Center for Research in Regulated Industries, Rutgers Business School, Rutgers University PeterSchulhof, ProjectManager, ConsolidatedEdison Company ofNew York Menahem Spiegel, Associate Professor ofEconomics, School ofManagement, Rutgers University TimothyJ.Tardiff, Vice President, National Economic Research Associates Martin C. Wilhelm, President, M.C. Wilhelm Associates SPONSORS Public Service Electric and Gas AT&T GPU Energy New Jersey - American Water Company NUl Corporation - Elizabethtown Gas Company PREFACE AND ACKNOWLEDGEMENTS This book is the result of two Research Seminars at the Center for Research in Regulated Industries, Rutgers-The State University of New Jersey on October 26, 2001, and May 3, 2002. Twenty four previous seminars in the same series resulted in Problems in Public Utility Economics andRegulation (Lexington Books, 1979), Issues in Public Utility Economics and Regulation (Lexington Books, 1980), Regulatory Reform and Public Utilities (Lexington Books, 1982), Analyzing the Impact of Regulatory Change (Lexington Books, 1985), Regulating Utilities in an Era of Deregulation (Macmillan Press, 1987), Deregulation and Diversification of Utilities (Kluwer Academic Publishers, 1989), Competition and the Regulation of Utilities (Kluwer Academic Publishers, 1991), Economic Innovations in Public Utility Regulation (Kluwer Academic Publishers, 1992), Incentive Regulation for Public Utilities (Kluwer Academic Publishers, 1994), Pricing and Regulatory Innovations under Increasing Competition (Kluwer Academic Publishers, 1996), Regulation under Increasing Competition (KluwerAcademic Publishers, 1999)and Expanding Competition in RegulatedIndustries (Kluwer Academic Publishers, 2000). Like the previous Research Seminars, these seminars received financial support from leading utilities. The views expressed, ofcourse, are those of the authors and do not necessarily reflect the views of the sponsoring companies: AT&T, Elizabethtown Gas Company, GPU, and Public Service Electric and Gas Company. New Jersey-American Water Company was a sponsorfor the 2001 Research Seminar. Company managers freely gave their time and advice and, on several occasions, provided information about their industries. We especially thank Richard Clarke, Frank Delany, Robert J. Gallo, John Graham, Terry Howson, Mary Patricia Keefe, and Steve Levinson. Mary Patricia Keefe, Vice President and Associate General Counsel of NUl Corporation was the keynote speaker at the Seminar on October 26, 2001. Connie Hughes, Commissioner, New Jersey Board of Public Utilities, was the keynote speaker at the Seminar on May 3, 2002. The interest of sponsors in the program, which originated with the first Research Seminar in 1978, has continued ever since and has been a major factor in the success of the program. Many thanks are owed to the distinguished speakers and discussants, listed on pages vii and viii, for their cooperation in making the seminars and this book possible. Most of them worked very hard in achieving deadlines, without which the speedy publication of this book would have been impossible. xii Markets, Pricing andDeregulation ofUtilities We would especially like to thank Jeremy T. Guenter, Administrative Assistant, at the Centerfor Research in Regulated Industries for his excellent work in typesetting the book on schedule. This involved working with the authors, the publisher, and with us to insure that the numerous tasks associated with producing a book were performed. All of his duties concerning the production of the book he performed thoughtfully and effectively. This is the eighth book he has set in Microsoft Word and he is continuously making improvements in the process to the benefit of the Center, the authors and the publisher. MICHAELA. CREW JOSEPH C. SCHUH
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