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Defining the New Policy Conflicts

Failing to address and adapt to the new ratemaking realities could result in increased costs for the economy.

Fortnightly Magazine - July 2006

deals to resolve the conflicts and no one has to engage in adaptive work—the work of adjusting how we think, what we value, and how we behave in response to new situations. 3 In contrast with the fact- and interest-based conflicts, resolving the third and fourth types of conflicts (conflicts over values and authority) requires adaptive work. 4 Value conflicts reflect preferences over, for example, the importance of energy prices and security versus environmental and health concerns. Authority conflicts—disagreements over who will make decisions that determine direction and order—are a special form of value conflict. The National Interest Transmission Corridor provision of the Energy Policy Act of 2005 (EPACT) raised authority conflicts by shifting authority for transmission-line siting from primarily state regulators to the U.S. Department of Energy and the Federal Energy Regulatory Commission.

Work is wasted and progress is delayed if we do not identify the real conflicts in an issue. For example, in one jurisdiction, stakeholders on one side of a debate over building new generating facilities pursued an extended argument over the design and choice of a consultant study on how to meet future power needs, rather than addressing the actual conflict over the tradeoff between environmental concerns and the size of people’s electricity bills. The group feared it might lose that debate. Efforts to resolve the false conflict delayed dialogue on the real conflict. Once the consultant study was completed, a second false conflict arose over forecasts and assumptions. Although on the surface this appeared to be a fact conflict, its real effect was to further delay dialogue on another challenge over how much risk is tolerable, and who should bear that risk.

This conflict framework can be applied to two topics addressed at the PURC conference: universal service in telecoms and meeting energy demands.

Universal Service Traditions

The United States has four programs for universal service: 1) the High Cost Fund (HCF), which provides financial support to primarily small, high-cost telephone companies; 5 2) low-income support, consisting of the Lifeline and Link-Up America programs, which provide local telephone price discounts to low-income households; 3) rural health care; and 4) support for schools and libraries. 6

The HCF is a legacy program with roots in the monopoly era, during which AT&T distributed long-distance revenues across states and across local telephone companies (including the independent companies), in part to average prices across the country. 7 The Lifeline and Link-Up programs were developed in the early 1980s to ensure that the introduction of subscriber line charges (which were in effect price increases for local telephone service) did not make service unaffordable for low-income households. The rural healthcare and schools and libraries programs were created by the U.S. Telecommunications Act of 1996.

The Universal Service Administrative Co. (USAC), which administers all of these programs, estimates that the programs will provide $7.3 billion in support in 2006, broken down as follows: high cost ($4.2 billion), low income ($820 million), rural healthcare ($45 million), and schools and libraries ($2.25 billion). 8 Funding for these programs exceeds federal funding for such programs as public