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Perspective

Fortnightly Magazine - December 1996

LOSSES, but bad market strategy to repeat the same threat to any ratepayer who may in the future become a customer. Recovery of LOSSES may discriminate against those who choose a competitive supplier and those who leave for other reasons (business relocation, business distress, or self-generation).

Fourth, recovery of LOSSES triggers an incentive to maximize artificially defined LOSSES and minimize mitigation. Fiddle with the numbers. The utility has the information, the resources, the experience, and the overwhelming advantage in negotiations of this type. Commission monitoring leads to continued uncertainty and delayed dynamic benefits.

Fifth, recovery of LOSSES simply guarantees full employment for ... lawyers.u8d

Exodus (flight from regulation)

Zero recovery of LOSSES marks an admittedly strong regulatory position. Yet, with mitigation, time, and a price cap allowing unlimited profit potential, coupled with specific minimum phased-in percentage price reductions, this zero-recovery policy should create a fair process that can allow rates to approach market prices.

The goal must focus on achieving competitive benefits for all.u9d With federal and state legislation looming on the horizon, action taken today by regulators may preserve options that otherwise might soon be lost to the lawmaker's pen.t

Christopher Garbacz was a professor of economics for 25 years before joining the Mississippi Public Utilities Staff in 1994. This article is drawn from a paper presented in Chicago in August at a conference sponsored by Global Business Research, Ltd. The author wishes to tank Herb Thompson, Mike McCool, Ken Rose, and Jerry Taylor for their helpful comments, although the article does not necessarily reflect their views, nor the position of the Mississippi PSC.

u1dEven if one might ban the "S" Word in written work, the spoken word would prove more problematic. Ask yourself how many times you have used the "S" Word in a recent week. Even the author, who has practiced diligently for months, occasionally slips.

u2dA few tricks are useful. Pause before you speak. Practice in front of a mirror and with colleagues. Re polite but firm with those who refuse to acknowledge your wisdom. Diligence will one day bring you to the ultimate state of bliss when you pleasantly say to a utility executive: "Never, never use the 'S' Word! Always say 'LOSSES!'"

u3dToday, however, retail competition recognizes that electricity generation is not necessarily a monopoly element. Some argue that generation should never have been treated as such. If there is enough competition to assure the absence of market power, it may not be necessary for government to regulate generation. Nevertheless, transmission and wires services likely should remain a government regulated monopoly, but by granting full access to transmission system ("wheeling") for competitive suppliers.

u4dThe deflation of the 1930s was not a factor in this price decline.

u5dIf natural monopolies were in place, why would one find such a disparity in price around the country as is seen today? Some differences might stem from fuel mixes, special interests, or diverse regulators, but not all. Such a range of outcomes should not persist where natural monopoly rules.

u6dThe Econ tribe speaks in a dense language that requires a