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Fortnightly Magazine - August 1996

right not to download this beast."

And a beast it is. Consider this excerpt, presumably written by Professor Joskow:

"If we had data for all of the relevant demand elasticities, cross elasticities, production costs, transportation costs, information costs, the distribution of information, market structure, and the nature of the competitive interactions between suppliers in a market, we could specify an associated market model and determine directly the extent of market power, and how it is affected by changes in transmission institutions, trading institutions, market structure, input costs, [and] technological change, etc."

Is that what Schaefer means by "the power to choose"?

I recall how the California Public Utilities Commission (CPUC) began its "Blue Book" hearings on electric restructuring back in 1994 with talk of empowered consumers and a new regulatory "vision." The state's economy was said to be reeling. The CPUC set out on a mission to lower the retail price of electricity. How different it all seems today, now that the CPUC has chosen to effect reforms by establishing a centralized energy market (the Power Exchange) and an independent system operator to run the transmission network. In reading the various reports, comments, and filings submitted in the FERC docket, it's almost impossible now not to get lost in the discussion of "workable" competition, relevant markets, and the ever-present Herfindahl-Hirschman Index. One comes away with the feeling that the goal of the exercise is not to help consumers, but to protect assets.

Mutual Deference

After I read Joskow's report on horizontal market power, I talked with Douglas Green, one of the attorneys at Steptoe and Johnson (Washington, DC) representing Edison before the FERC. I asked him whether there were any unspoken linkages between issues at the CPUC and the FERC. Did the FERC feel pressured to approve the CPUC plan, given all the effort invested by the CPUC in its Blue Book hearings and PoolCo policy choice? Moreover, would FERC approval be seen as tacit acceptance of the CPUC's policy on stranded costs and the proposed competitive transition charge? Here is what Green said:

"At the FERC, the California PUC is a neutral party. It hasn't presented any particular view. And the PUC in its own decision stressed the need for 'cooperative federalism,' and expressed an interest to show deference to FERC in its area, and vice versa. I don't see any reason why that won't work smoothly."

Green continued: "I think the FERC would like to be able to help meet the schedule, which calls for the Power Exchange to begin on January 1, 1998, and that is certainly a feasible schedule if we can stay on the course that we are on now."

In other words, what we have is a policy of "mutual deference." The CPUC needs the FERC's cooperation to set up the power pool. But the FERC could use some state support for its stranded-cost policy and its controversial stance in Order 888 to assert jurisdiction over the "retail transmission component" of unbundled retail wheeling service.



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