Title: PURC review
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Permanent Link: http://ufdc.ufl.edu/UF00091019/00005
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Title: PURC review
Series Title: PURC review
Physical Description: Serial
Language: English
Creator: Public Utility Research Center, Warrington College of Business, University of Florida
Publisher: Public Utility Research Center, Warrington College of Business, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: Winter 2005
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Bibliographic ID: UF00091019
Volume ID: VID00005
Source Institution: University of Florida
Holding Location: University of Florida
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PURC


Vol.13


"Leadership in Infrastructure Policy"


Through the generous support of sponsors and friends, the Public Utility Research Center continues to provide
programs that are mutually beneficial to the energy, water, telecommunications, regulatory and academic sectors.



Is the Tail Wagging the Dog in

Communications Policy?


Making communications
policy in the U.S. has be-
come dangerous work. Is-
sues such as network unbundling and
service subsidies seem like zero sum
games and any "loser" on a particular
policy decision has an incentive to
fight back. A lack of clear direction in
U.S. communications policy only com-
plicates matters.
Will market forces shape the com-
munications future? Which specific
infrastructure goals, such as broad-
band targets or services, are being pur-
sued for specific groups? Is the mar-
ket driven by stakeholder interests, or
is it ensnared in a Gordian knot of
multiple drivers: market forces, indus-
trial policy, and stakeholder prefer-
ences? How are regulators and policy
makers to make decisions in such a
highly charged environment in which
priorities are unclear?
Speakers and participants ad-
dressed these and other tough ques-
tions at PURC's first Fall Roundtable,
"Is the Tail Wr.'.; the Dog in Com-
munications Policy?" in September.
The lively exchange of ideas led to
some consensus on themes and hot
issues for future deliberations.


PURC Director Mark Jamison fields
questions from the audience during the
PURC Fall Roundtable in September.

After being welcomed by PURC
Director Mark Jamison and Tallahas-
see Mayor John Marks, attendees
heard from keynote speaker Profes-
sor Martin Cave, Director of the Cen-
tre for Management under Regulation
at the Warwick Business School.
Professor Cave outlined policy de-
velopments in Europe and drew les-
sons for the United States. He empha-
sized that regulators in Europe are re-
quired to demonstrate the need for
regulation before imposing it, and to
tailor remedies to the perceived prob-
lems. He observed, however, that it has
been hard to get the European regu-
latory authorities to follow the spirit
of these requirements.
Susan Masterson, an attorney at


Sprint, applauded PURC's ability to
"put together a fresh program with
interesting speakers and topics. I par-
ticularly enjoyed and learned from
Professor Cave's talk; he piqued my
interest and I intend to do further re-
search on the difference in the struc-
ture of administrative agencies in Eu-
rope and the United States."
Roundtable sessions that followed
examined both the growth of com-
petition and innovation in Florida, as
well as access to new technologies and
services by key end users.


Dr. William Lehr, MIT, (standing) serves
as moderator during the Roundtable's first
panel session.
A complete report of Roundtable
highlights, including a list of the key
communications policy challenges for
Florida as observed by event partici-
pants, is available atwww.purc.org. '9-


www.purc.org


Winter
2005








Information Rules: Part 1
Mark A. Jamison, Ph.D., PURC Director


"What did the president know and
when did he know it?" has been a
popular question since it was first
asked about 30 years ago.
A similar question, "What does the
regulator know and when does he
know it?" is the key question in regu-
lation because the decision, "Should
we regulate?" and the decision, "How
should we regulate?" both hinge on
information. When it comes to mak-
ing regulatory policy, information
rules!
Let me explain. Suppose the regu-
lator knew as much as company man-
agers about what customers want,
what they are willing and able to pay,
and the most efficient means of sup-
plying the market. In such a world, the
regulator could micromanage the
company telling the employees when
to roll the trucks, buy PCs, advertise,
etc. because the regulator knows just
as much as anyone else. Furthermore,
by micromanaging the company, the
regulator can ensure that the company
achieves the regulator's objectives.
This is a clear win for the regulator.
But in today's world, the regulator
is not an expert on the best ways to
diversify risk, choose technologies,
advertise, negotiate contracts, fix soft-
ware glitches, etc. Company manag-
ers are the experts in these areas. This
means that these managers have an in-
formation advantage over the regula-
tor, and this is what makes regulation
challenging.
The regulator can address this in-
formation advantage in three ways, by
learning about the sector, introducing
competition, and using incentive regu-
lation schemes such as price cap regu-
lation. The regulator learns about the
industries he regulates by reading the
trade press, talkingwith industry man-
agers and customers, studying finan-
cial statements, etc. More channels of
communication and more time using
them mean more information. How-
ever, the regulator can never absorb


all the knowledge embedded in a com-
pany, so competition and incentives
remain key instruments for the regu-
lator.



When it comes to making

regulatory policy,

information rules!



Competition has become a fa-
vorite tool for telecom regulators. In
the best case scenario, it can com-
pletely overcome the company's infor-
mation advantage. Once competition
takes hold, the telecom regulator can
pretty much step aside, except to deal
with market structure issues of inter-
connection, anticompetitive conduct,
and the like. Of course, applying these
instruments also requires information.
In water and energy, competition
generally plays only a limited role, so


Industry Outreach

n December, PURC Director of
Energy Studies, Dr. Paul
Sotkiewicz, was a speaker at the
5th AES IU Regulatory Working
Group Workshop in Miami for regu-
latory staff from AES subsidiaries.
He made two presentations to
staff from AES's Western US Gen-
eration Group, Indianapolis Power &
Light (IPL), and various international
subsidiaries.
The presentation of "A Summary
of Regulatory Mechanisms, Their Re-
spective Incentives, and Relative Ad-
vantages and Disadvantages" summa-
rized the properties of regulatory
mechanisms used to regulate transmis-
sion and distribution. "Transmission


incentive regulation schemes matter
more in these sectors than in telecom-
munications. Incentive schemes re-
ward company managers with extra
profit when they improve perfor-
mance for example, by accepting
lower prices, delivering higher quality,
or expanding service. This overcomes
the regulator's need to know how to
improve performance, but it comes at
a cost to customers, namely, higher
profits for companies.
To sum up, one of the jobs of the
regulator is to get customers the best
deal possible. The regulator can do this
by facilitating competition, but to do
this well, the regulator needs to know
how the industry works. The regula-
tor can also get customers more bang
for their buck through incentive regu-
lation. The more the regulator knows,
the better incentive regulation works.
Information rules!
A more complete analysis of the
role of information in infrastructure
regulation is available online at
www.purc.org. 'z-


Tariff Issues: Considerations for Dis-
tribution Companies and Generators"
considered the rate impacts for users
and revenue impacts for transmission
companies of widely used short-run
and long-run tariff mechanisms, in-
cluding nodal, zonal, flowgate, and
MW-mile methodologies.
Along with Dr. Sotkiewicz, other
speakers included Dr. Stephen
Littlechild (former UK chief energy
regulator); Dr. Tooraj Jamasb of Cam-
bridge University; Dr. Peter Cramton
of the University of Maryland and an
advisor to ISO-New England; and
Mario Damonte, President of Quan-
tum-America. 0->


2 "Leadership in Infrastructure Policy"









Activities Update


Center News
PURC Director of Telecom-
munications Studies Mark A.
Jamison was named Director
of the Public Utility Research Center
in May. Former PURC Director
Sanford V. Berg stepped down to de-
vote more time to a program on wa-
ter policy studies, as well as to a book
on infrastructure management and
regulation. Dr. Berg was named
PURC's Director of Water Studies and
remains its Florida Public Utilities Pro-
fessor.
This winter, PURC is gathering
feedback from its constituents regard-
ing the demand for advanced online
training in utility regulation and policy.
Readers are asked to complete a brief
online survey at www.purc.org.
Dr. Jamison and Lanzillotti-
McKethan Eminent Scholar in Eco-
nomics, David Sappington, partici-
pated in the "Formulating a Research
Agenda for Communications Policy"
workshop at the Federal Communica-
tions Commission in December.
Presenters examined broadband
and advanced services issues, media
concentration issues, and network
interconnection. The discussion of in-
ternational benchmarking in broad-
band adoption challenged the conven-
tional wisdom that the US is falling
behind the rest of the world. The
workshop was sponsored by PURC,
the UF Public Policy Research Center
and the Quello Center at Michigan
State University.
Dr. Jamison spoke at recent meet-
ings of the National Association of
Regulatory Utility Commissioners and
the Organization of Caribbean Util-
ity Regulators about the importance
of leadership skills for regulators. He
emphasized the importance of lead-
ership in effecting meaningful change
in regulatory policies and the dangers
regulators face when exercising lead-
ership.


Leadership News
The PURC Leadership Advisory
Council met for the first time in Sep-
tember to talk with PURC leaders and
offer advice on leader-
ship, management and strategic issues.
PURC Director MarkJamison formed
the group during the summer to serve
as a sounding board for leadership and
strategy issues. Dr. Jamison extends his
thanks to those volunteering to serve:
Attorney Susan Clark, Radey, Thomas,
Yon & Clark, P.A.; Skip Everitt, Presi-
dent of Everitt and Associates; Julia
Johnson, President of NetCommuni-
cations;J. Paul Morgan, Director Gen-
eral of the Office of Utility Regula-
tion in Jamaica; and UF Associate Pro-
fessor Marilyn Roberts.

Now online u
"Practical Lessons for Perfor-
mance Monitoring in Low-Income
Countries: The Case of National Wa-
ter and Sewerage Corporation,
Uganda," by PURC Visiting Scholar
Silver Mugisha, Sanford Berg, and
Heather Skilling, and "Success for
Uganda from a Series of Short-Term
Initiatives," by Silver Mugisha, Dr.


32nd Annual PURC Conference


Register online at www.purc.org
for the 2005 PURC Annual
Conference, "Emerging Tech-
nologies and Trends: Effects on
Consumers, Industries and Regulators,"
scheduled February 9-10, 2005, at the
Hilton University of Florida Conference
Center in Gainesville.
Speakers include Severin Borenstein,
University of California Energy
Institute; Robert Crandall, The
Brookings Institution; UF President
Bernie Machen and Xcel Energy, Inc.
Chairman and CEO Wayne Brunetti,
among others.


Berg and Gaddi Ngirane Katashaya
(both papers published in Water21, in
October and June 2004, respec-
tively).
"Survival Guide for the Inde-
pendent Regulator," "Leadership and
the Independent Regulator," and
"Leadership in Regulation," three pa-
pers by Dr. Jamison.
Two papers by Dr. Sotkiewicz
and PURC Visiting Scholar, J. Mario
Vignolo: "Allocation of Fixed Costs
in Distribution Networks with Distrib-
uted Generation" and "Allocation of
Loss Costs in Distribution Networks
with Distributed Generation: The
Nodal Factor Pricing Method."

Coming Soon
PURC is partnering with Cam-
bridge Leadership Associates (www.
cambridge-leadership.com) to develop
leadership workshops for regulators
and policymakers in 2005. Watch the
PURC web site (www.purc.org) and
the PURC Review for announcements.
PURC is developing plans to offer
advanced training on regulatory issues
online. Details to be announced. Con-
tact PURC at 352-392-6148 for more
information. '-


A complete agenda and registration
form can be found online at
www.purc.org. Checks and credit cards
accepted. For more information, call
352/392-8677.

Water Conference
PURC will co-host the 2005 Water
Conference with the Reubin O'D. Askew
Institute, March 31 and April 1, 2005,
at the Orlando Marriott Downtown.
Speakers include Governor Askew
and International Water Association Ex-
ecutive Director Paul Reiter, among oth-
ers. Register online at www.purc.org.
Checks and credit cards accepted. For
more information, call 352-392-3655.
10


www.purc.org 3






UNIVERSITY OF
FLORIDA
Public Utility Research Center
P.O. Box 117142
Gainesville, FL 32611-7142
www.purc.org


February 9-10, 2005
2005 PURC Annual Conference
"Emerging Technologies and
Trends: Effects on Consumers,
Industries and Regulators"
Register online at www.purc.org.
See page 3 for details.

February 24-25, 2005
Joint Telecommunications
Conference with the
London Business School
Gainesville, FL
For more information, call
352/392-6148.

March 31 -April 1, 2005
Joint Water Conference with
the Askew Institute
Orlando Marriott Downtown
Register online at www.purc.org.
See page 3 for details.


June 6-17, 2005
18th PURC/World Bank
International Training
Program on Utility
Regulation and Strategy
Hilton
University of Florida
Conference Center,
Gainesville, FL

For more information,
call 352/392-3655.


Sponsors and Representatives on
the PURC Executive Committee:

BellSouth Telecommunications, Inc.
Florida Municipal Electric Assoc.
Florida Municipal Power Agency
Florida Office of Public Counsel
Florida Power & Light Company
Florida Public Service Commission
Gainesville Regional Utilities
Gulf Power Company
Progress Energy Florida
Seminole Electric Cooperative, Inc.
Sprint-Florida, Inc.
University of Florida

Public Utility Research Center
Web site: www.purc.org
E-mail: purcadmin@cba.ufl.edu
Ph: 352/392-6148
FAX: 352/392-7796


NONPROFIT ORG
U.S. POSTAGE
PAID
GAINESVILLE FL
PERMIT NO 94


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