1792Tripp v. Frank (England)

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Economic Regulation Evolution of Legal Rules
1792 Tripp v. Frank (England) 1837 Charles River
Bridge (U.S.) 1859 Edwin Drake struck oil in
western Pennsylvania 1865 First natural gas
utility opened in Fredonia, NY 1877 Munn v.
Illinois 1882 Edisons Pearl St. Station power
plant opened 1887 Interstate Commerce Act 1880s-
Rise of state utility commissions passage of
federal major antitrust legislation 1930s Federal
Power Act Rural Electrification Act Public
Utilities Holding Co. Act
1930s
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• Charles River Bridge case
• How did this dispute arise? Who is suing whom,
  and why?
• Why did the state grant the first charter? Was
  it mere political graft?
• Why did it grant the second charter?
• Isnt the state trying to breach its agreement
  with the plaintiffs?
• Can the state simply render the old bridge
  valueless like that? Is that legal?

3

• Munn v. Illinois
• How did this dispute arise? Who is suing whom,
  and why?
• What is the problem that the State of Illinois
  was trying to address?
• Didnt Illinois realize that ours is a free
  market economy? These private business owners
  werent doing anything wrong, were they?
• Under todays laws, how would the state have
  reacted to the actions of these defendants?

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ECONOMIC REGULATION Controlling price and other
aspects of competition GOAL Prevent monopoly
pricing

• Antitrust/Competition law
• Acquisition of price-setting power
• Collusion to fix price
• Use of market power unfairly or unreasonably to
  squelch competition

• Public Utility Regulation
• chartered monopoly
• administrative price setting
• Government Ownership

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• Artifacts of Standard Oil U.S. antitrust laws
  prohibit
• price fixing / collusion
• geographic market divisions
• maintenance of a monopoly through bad acts
• certain forms of price discrimination
• certain forms of resale price maintenance
• mergers that will create firms with monopoly
  power

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Monopolization

• Arent electric and gas utilities monopolies (in
  most states)? Are they violating the antitrust
  laws?

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Economic Regulation Evolution of Legal Rules
1792 Tripp v. Frank (England) 1837 Charles River
Bridge (U.S.) 1859 Edwin Drake struck oil in
western Pennsylvania 1865 First natural gas
utility opened in Fredonia, NY 1877 Munn v.
Illinois 1882 Edisons Pearl St. Station power
plant opened 1887 Interstate Commerce Act 1880s-
Rise of state utility commissions passage of
federal major antitrust legislation 1930s Federal
Power Act Rural Electrification Act Public
Utilities Holding Co. Act
1930s
8
Inefficiency of Monopoly
Price
PM
MC MR D
PC
QM QC Quantity
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• Commission Regulation
• COMMISSION FORM
• Plural executive appointed (feds) or elected
  (some states)
• Rate cases few rulemakings
• Staff represents ratepayers

CONGRESS Staff PRESIDENT COMMISSION Intervenor
s Regulated Firms
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• Commission Regulation
• COMMISSION FORM
• Plural executive appointed (feds) or elected
  (some states)
• Rate cases few rulemakings
• Staff represents ratepayers
• REGULATORY PRINCIPLES
• Natural monopoly certificate of convenience
  and necessity duty to serve

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• Commission Regulation
• COMMISSION FORM
• Plural executive appointed (feds) or elected
  (some states)
• Rate cases few rulemakings
• Staff represents ratepayers
• REGULATORY PRINCIPLES
• Natural monopoly certificate of convenience
  and necessity duty to serve
• Cost-based rate setting fair rate of return
  for shareholders on prudent investments
• How might this fair return be established?

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• PUBLIC POWER MOVEMENT
• Federal Power Agencies (TVA, BPA)
• REA
• Municipal power
• Federal and municipal preferences
• California in 2002?

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Characteristics of modern, regulated public
utility

• Monopoly license within service area
• Duty to serve all
• Regulated rates