Table Of ContentMARKETS, 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
