even a two-handed economist can see that.The June 11 Power Broker decision from the D.C. Circuit, involving Florida Power and Light Co. (FP&L) and certain wholesale customers (see sidebar), reminds one that a dish of corned beef and cabbage tastes better when you don't leave out the cabbage.
On the surface, the case indicts the idea of average-cost pricing: "All hands recognize that the
problem originates in the use of average costs . . . If partial requirements customers paid for energy the same way [as] buyers in the economy energy market [on the margin], there would be no arbitrage to exploit." But the court's solution (em to ask the Federal Energy Regulatory Commission (FERC) to impose "economic efficiency" (em ignores the rationale for average-cost ratemaking.
The court acknowledged that when FP&L's partial requirements customers bought energy from the utility at average cost, they took service under a tariff in which both demand and energy were sold. Yet, the court fails to consider that the buyer would not be entitled to the energy at average cost if he had not first paid the full average cost of the capacity.