Book contents
- Frontmatter
- Contents
- Preface
- About the Authors
- Deregulatory Takings and the Regulatory Contract
- 1 The Nature of the Controversy
- 2 Deregulation and Network Pricing
- 3 Quarantines and Quagmires
- 4 The Regulatory Contract
- 5 Remedies for Breach of the Regulatory Contract
- 6 Takings and the Property of the Regulated Utility
- 7 Just Compensation for Deregulatory Takings
- 8 The Efficient Component-Pricing Rule
- 9 The Market-Determined Efficient Component-Pricing Rule
- 10 Answering the Critics of Efficient Component Pricing
- 11 The Equivalence Principle
- 12 TSLRIC Pricing and the Fallacy of Forward-Looking Costs
- 13 Deregulatory Takings and Efficient Capital Markets
- 14 Limiting Principles for Stranded Cost Recovery
- 15 Deregulation and Managed Competition in Network Industries
- 16 The Tragedy of the Telecommons
- References
- Case Index
- Name Index
- Subject Index
2 - Deregulation and Network Pricing
Published online by Cambridge University Press: 29 October 2009
- Frontmatter
- Contents
- Preface
- About the Authors
- Deregulatory Takings and the Regulatory Contract
- 1 The Nature of the Controversy
- 2 Deregulation and Network Pricing
- 3 Quarantines and Quagmires
- 4 The Regulatory Contract
- 5 Remedies for Breach of the Regulatory Contract
- 6 Takings and the Property of the Regulated Utility
- 7 Just Compensation for Deregulatory Takings
- 8 The Efficient Component-Pricing Rule
- 9 The Market-Determined Efficient Component-Pricing Rule
- 10 Answering the Critics of Efficient Component Pricing
- 11 The Equivalence Principle
- 12 TSLRIC Pricing and the Fallacy of Forward-Looking Costs
- 13 Deregulatory Takings and Efficient Capital Markets
- 14 Limiting Principles for Stranded Cost Recovery
- 15 Deregulation and Managed Competition in Network Industries
- 16 The Tragedy of the Telecommons
- References
- Case Index
- Name Index
- Subject Index
Summary
THE COMPETITIVE TRANSFORMATION of local exchange telecommunications and the electric power industry raises significant questions about whether regulators should give a public utility the opportunity to recover its stranded costs. As regulators mandate the unbundling of basic network elements in local telephony or wholesale and retail wheeling in the electricity industry, they introduce competitive rules that potentially deny incumbent utilities the opportunity to recover the cost of service. While competition presents incumbents with opportunities to serve customers in new ways, regulators often leave untouched the utility's preexisting incumbent burdens. Such regulatory action threatens to confiscate private property—shareholder value—for the promotion of competition, without just compensation. This chapter addresses the major issues giving rise to the problem of deregulatory takings.
To understand deregulation, it is necessary to identify a number of important economic issues and define essential concepts. Why were the network industries regulated in the first place? What motivated policymakers to undertake deregulation? Although it is not possible to review here all of the social, political, and market forces that motivated the creation and reform of regulation, it is useful to examine some of the key economic arguments for both the creation and the removal of regulation.
NATURAL MONOPOLY AND NETWORK INDUSTRIES
The presence of natural monopoly technology provides a central motivation for establishing regulated industries and accordingly imposing entry barriers, price controls, and obligations to serve. As then Professor, now Justice, Stephen G. Breyer observed, “The most traditional and persistent rationale for governmental regulation of a firm's prices and profits is the existence of a ‘natural monopoly.’”
- Type
- Chapter
- Information
- Deregulatory Takings and the Regulatory ContractThe Competitive Transformation of Network Industries in the United States, pp. 19 - 54Publisher: Cambridge University PressPrint publication year: 1997