Publications by Author: Brown%2C%20Ashley

The essay sets out what electric markets might look like if the pricing proposed in value of solar studies were adopted for every resource.

 

The difference between the pricing of transmission services for retail customers and the
pricing for wholesale customers could hardly be more striking.. Retail customers still pay
for transmission in exactly the same way that they have done for generations, namely through bundled retail rates. There are no unbundled retail transmission tariffs as such. Rates are based on the classic, time-honored methodology of cost of service regulation, namely capital investment minus depreciation times rate of return, plus expenses. The rate is then adjusted to account for customer class differences.

With one or two possible exceptions related to future transmission services, wholesale
customers generally pay, or at least have the option to choose to pay, an unbundled,
transmission-specific rate and then choose their supplier from the marketplace. The
transmission price will at least reflect the discrete costs of providing transmission-specific
services or, depending on the pricing system employed in the locality the service is being
rendered, may well be reflective of all costs actually being incurred on the system, including
congestion costs. In short, transmission-specific price signals are, with a few possible
exceptions, given solely to wholesale customers. They are not conveyed to retail customers
either directly or indirectly.

A discernible, and potentially destabilizing, irony has emerged in the pattern of infrastructure
privatizations and establishment of regulatory regimes in developing countries. Investor and
lender fears of political and regulatory risk may well be leading to risk mitigation strategies that
may, in the medium to long term, exacerbate the very risks to which investors were adverse in
the first place. While there are clearly risks besides political and regulatory matters with which
investors need to concern themselves, it is in seeking to protect themselves against those two
categories of potential problems that investors may do more harm than good to themselves and
the framework within which they operate in the long run.
The context of the irony is two fold, conceptual and historical. The conceptual aspect is the
appropriate equilibrium between investor, consumer, and public interests. The historical aspect
is the spectrum of past events within which the current wave of infrastructure privatizations are
occurring.
[...]
The first, and the most obvious, step to take is to provide a high level of service, a higher level
than had heretofore existed in the predecessor, publicly owned enterprise. One of the arguments
that proponents of privatization almost always make is that private ownership is more efficient
and more responsive to consumers than parastatal companies. It is simply foolhardy to behave in
ways that disprove those arguments. That is particularly the case where privatization has been
accompanied by reductions in staff and/or increases in rates. The private investor is well advised
to view itself as having a fiduciary obligation to increase efficiency. Merely cutting costs may be
good for the bottom line in the short run, but it is a perilous course politically and regulatorily if
it is not part of an overall program to increase efficiency in delivering a higher quality of service
to consumers. It is very difficult, if not impossible, to establish a pricing regime for newly
privatized entities that makes the subtle distinction between incentivising efficiency and
incentivising mere cost cutting. It is incumbent, therefore, on the investor to see the “big picture”
and produce a better product at lower cost rather than simply reducing its own costs regardless of
the consequences. In short, the investor needs to see the overall public interest in high quality service as being its own enlightened self interest.
 

Excerpt form the Introduction:
The regulatory framework for electricity in the United States has evolved in two tiers, on both
a horizontal and a vertical basis. Horizontally, the two tiers are de jure and voluntary, or de facto.
Vertically, of course, the two tiers are state and federal, subsets of the de jure tier. De jure regulation
has, as might be expected evolved along political or policy or even legal fiction boundary lines. The
voluntary regulatory scheme, perhaps best illustrated by the regional reliability councils, has tended
to evolve along market or physical characteristics and bear, with the possible exception of ERCOT,
at best, little resemblance to any political or jurisdictional boundaries Not surprisingly, as the
electricity market has evolved, the de facto regulatory system, in a geographic, perhaps even geo-
political sense, more accurately reflects the realities of the marketplace. Simply stated, the markets
evolving are neither state specific nor national in scope, rather they are, at one and the same time,
both regional and international.

Brown, Ashley. Regulatory Risk: Is the Subject Still Relevant or Do Markets Govern?" Yale Journal of Regulation 13, no 1 (Winter 1996)."

Brown, Ashley. Transparency in Regulated Industries: Elements and Importance. Draft. 20 May 1996.

Detroit Edison's suit to halt the Michigan Commission's
limited retail wheeling experiment could result in two
ironies: (1) Edison may still be required to wheel power to
retail customers, but at rates less likely to be fully
compensatory, and (2) its generation will be more devalued
than it would have been without the suit.

EXECUTIVE SUMMARY

The passage of the Energy Policy Act in 1992 ushered in a new competitive era in the U.S. electricity industry. The task ahead for both state and federal regulators is to make the regulatory changes that are a necessary part of these changes in the industry in a coherent fashion.

• There is no way to achieve coherence in transmission policy without formal cooperation between federal and state regulators. Congress should urge these regulatory bodies to begin this process, in order to address issues of transmission pricing, unbundling of services, siting, access, and planning.
• Who should bear the risks of a transition to a more competitive industry? This is clearly a question of policy, and should be treated as such. As a matter of policy, the jurisdiction which is responsible for creating stranded assets should be the one which deals with its consequences. I applaud the California and Michigan commissions for dealing with this issue explicitly as part of their proposals. The FERC has done the same in its recent NOPR, but has left unclear the issue of possible preemption of state jurisdiction.
• Registered holding companies are currently shielded from competition by the ability to pick the regulatory forum to which they turn for decisions, and by judicial determinations which insulate self-dealing from market forces. The proposed "fix" to the Ohio Power case, now before the Congress, is a step in the right direction. However, there are still gaps and overlaps between federal and state jurisdictions that need to be addressed. In order to supervise transactions involving registered holding companies, the FERC and state PUCs need to work together. If the Congress is unwilling to codify the Pike County doctrine, it should urge the FERC to adopt it explicitly as a formal doctrine of regulatory federalism, andmake rulings that are consistent with multiple layers of jurisdiction.

The Congress must encourage the FERC and the state commissions to exercise statesmanship on these issues, rather than continuing to engage in bureaucratic turf battles.

The passage of the Energy Policy Act in 1992 ushered in a new competitve era in the U.S. electricity industry. The task ahead for both state and federal regulators is to make the regulatory changes that are a necessary part of these changes in a coherent fashion.

• There is no way to achieve coherence in transmission policy without formal cooperation between federal and state regulators. The Commission should take steps to begin this collaborative process, in order to address issues of transmission pricing, unbundling of services, siting, access, and planning.
• Who should bear the rists of a transition to a more competitive industry? This is clearly a question of policy, and should be treated as such. As a matter of policy, the jusrisdiction which is responsible for creating stranded assets should be the one which deals with its consequences. I applaud the California and Michigan commissions for dealing with this issue explicitly as part of their proposals. the FERC has done the same in its recent NOPR, but has left unclear the issue of possible preemption of state jurisdiction. 
• The failure of Congress to codify the Pike County doctrine has created a number of regulatory difficulties which make retail competition more attractive, IRP less attractive, and potentially diminishes the richness of wholesale markets. 

The FERC and the state commissions mist exercise the statesmanship on these issues, rather than continuing to engage in bureaucratic turf battles.

The debate on the issue of pricing transmission services, indeed transmission policy in
general, is characterized by a massive cognitive dissonance. FERC issues a lengthy series of
significant questions about just about everything a federal regulator would ever want to know about
transmission, except for how they relate to the other set of regulators who have so much to say
about the grid. Other than a passing reference, that question did not get asked at all. Thus we are
involved in a debate where most of the discussion takes place in a forum that is responsible for
significantly less than half the revenue that's derived from transmission. Moreover, the regulators
that are responsible for the bulk of transmission revenues set them as part of bundled retail rates
and rarely, if ever, think about transmission in discrete terms. Accordingly, we not only have
cognitive dissonance as to the forum and the substance, but we have decision-makers making critical
decisions who simply do not think about what their peers may be doing, except to the extent that
state regulators worry about FERC preemption of their authority, and FERC fears that state
regulators are actually monopolists who intend to impede all competition. Beyond that, there is
not much dialogue. Given this state of affairs, it seems unlikely that coherent transmission policies
will emerge in the absence of a more formal system of cooperation.

The recently passed Energy Policy Act has intensified the need to resolved long-standing problems between federal and state regulatory systems. Various means of coordination are open but benefits will be lost if we don't get moving.

Foremost among a number of legislative reforms imposed upon state utility and regulatory commissions in recent years have been sunshine laws. The intent of sunshine laws is laudable and the idea simple: the public's business ought to be conducted in the open for the public to observe. Decision making should be transparent, with a clearly articulated rationale available for all who seek it. Not only the decision, but its evolution and the decision makers' thought processes, should be fully revealed. Few backroom deals can withstand such scrutiny. Should the level of accountability vary for an appointed or elected public official? In theory, no, but that only addresses questions about the appearance of accountability and openness. Does such a requirement improve the quality of decision
making; or, more importantly, does it improve the quality of decision? There is a strong case that it does not?

This article examines how the cost of transmission of power is to be incorporated in the utilities ratebase in a competitive bulk power market. The topics include a call for public discussion and debate, who should bear the risk of residual revenue responsibility for transmission assets, are actual costs and uses reflected in the allocation of responsibility for transmission revenues, and how can transmission pricing be used to reduce the likelihood of anti-competitive behavior by those entities owning both generation and transmission facilities.

For years, utilities, regulators, and economists have discussed the possibility of opening access to the electric transmission grid. It is now well past the time to cut the Gordian knot in impasse over the debate, and to raise the key strategic question of whether utility owned transmission facilities belong in the ratebase paid for by native-load ratepayers. The question is complex, but requires public discussion and debate as we move inexorably to more competitive bulk power markets. The issue is best approached from three different perspectives: 

• Who should bear the risk of residual revenue respon-
sibility for transmission assets?

• Are actual costs and uses reflected in the allocation of responsibilities for transmission revenues?

• How can transmission pricing be used to reduce the likelihood of anti-competitive behavior by those entities owning both generation and trasmission.

There is a fundamental contradiction between the substantive task regulatory bodies, such as public utility commissions, are charged with performing and the process imposed upon them for doing it. This contradiction, often reinforced by the nature of judicial review, constitutes a severe hindrance to the effectiveness of regulation

This article examines the nature and extent of authority which state utility commissions have to regulate access
to electric power transmission lines and pricing for such access. Somewhat surprisingly, since there has
been a common assumption that this is the domain of federal regulators, the author is able to point out
numerous bases for the exercise of jurisdiction by state regulators, by direct grants of authority, or indirectly
in the discharge of other responsibilities and duties.