Lynne Kiesling has an article in a telecom newsletter of Heartland Institute. She writes of the Illinois Commerce Commission,
The ICC chose to set those rates at approximately half the average rate chosen by other states. It did this by calculating the hypothetical costs of a firm operating at maximum efficiency and full capacity and using a depreciation rate much lower than private businesses use.
So far, a standard description of regulatory price setting. But, Lynne is more clever than your average bear. She goes on to provide the following useful analogy.
It's as if you drove your SUV from Chicago to Springfield carrying two passengers, and they agreed to reimburse you for their share of the gas - but they each pay you only for the gas you would theoretically have used if you were driving a Toyota Prius with four passengers. SBC asked, in effect, that the vehicle's real fuel economy and number of passengers be used to determine what each passenger owed.
More of her blog observations can be found at www.knowledgeproblem.com. And, in the interest of disclosure, the same issue of Heartland's Information Technology Update features a certain study on municipal ownership .