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Thursday, May 5, 2005

Public Power Gets Testy
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Adam Peters testified today in front of the House Small Business Committee. The American Public Power Association -- the consortium that represents government-owned power providers -- gets rather testy and peevish Download file that Adam had the temerity to point out that only public power is insulated from state regulatory rules to prevent cross-subsidization.

Now, this is about the most arcane aspect of public utility regulation that one can imagine: cost allocation within an entity that operates in both a closely-regulated and a competitive market sphere. The question: how do you allocate costs (particularly when they might be joint and common) between the regulated and unregulated activities? The answer matters because the failure to do cost allocation invites predatory cross-subsidization in the competitive market and cost inflation in the regulated market.

With investor-owned utilities, state commissions require the utilities to file cost allocation manuals, and hold them to this. Indeed, cost allocation is a difficult, if not impossible, undertaking.

With public power entities, which are usually immune from state regulation, there is no regulator to force the cost allocation issue. There may (and should) be restrictions on the public power entities charter to get into competitive fields -- be they heating contracting or broadband. Thus Adam made what is a rather straightforward and obvious point -- the only entities that are not forced by regulators to do cost allocation and then be supervised with their cost allocations are publicly-owned utilities. Thus, they have a greater ability to use their "regulated" platform to cross-subsidize business forays into competitive markets.

I am not sure how public power can deny this fact.

posted by Ray Gifford @ 12:24 AM | Municipal Ownership

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