David Loomis
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
Maximizes the sum of consumer and producer surplus Productive and allocative efficiency
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
Uncertainty about costs – imperfect information Other regulatory interventions – Renewable Portfolio Standards (RPS) – increasing costs
See Notes