Upload
albert-reynolds
View
212
Download
0
Embed Size (px)
Citation preview
To mimic a competitive market outcome even when the underlying market is not competitive
“other goals”◦ Fair and just rates◦ Specific policies regulators believe to be in
customers’ best interests◦ Universal service◦ Affordability◦ Economic development
Fundamental Goal of Regulation
Maximizes the sum of consumer and producer surplus
Productive and allocative efficiency
Competitive Ideal
Natural Monopoly◦ Firms builds pipeline costing $365 million with
capacity of 1 million cubic meters; has to repay $36.5 million/yr
◦ If it transports 100 cubic meters per day, AC=$1,001/cubic meter
◦ If it transports 1,000 cubic meters per day, AC=$101/cubic meter
◦ Also AC of building pipe decreases as size of pipe increases/cost=circumference, production=volume
Barriers to entry
Factors that Preclude a Competitive Outcome
Uncertainty about costs – imperfect information
Other regulatory interventions – Renewable Portfolio Standards (RPS) – increasing costs
Other Complicating Factors