Title: PURC review
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Permanent Link: http://ufdc.ufl.edu/UF00091019/00009
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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: Summer 2006
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Bibliographic ID: UF00091019
Volume ID: VID00009
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.

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Summer

2006


PURCReview

"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.



A Century of Utility Regulation:


Lessons We've Learned


Next year marks the hundredth
anniversary of regulation by
public utility commissions in
this country. Speakers at the 33rd An-
nual PURC Conference in February
examined how the lessons we have
learned through our hundred years of
experience provide us with a path for
the future.
Why look back? At the PURC con-
ference in 2005, a Florida Public Ser-
vice Commissioner reminded us why
history matters and how we can lose
sight of what's really important if we
forget where we've come from, why
we've created traditions and why we've
kept them. A century ago, U.S. citizens
were engaged in a very full debate
about whether they should create state
utility regulatory agencies, what their
authority should be, and which kind
of independence they should have

A note to readers:
The summer issue of the PURC Review
is mailed with the July issue of Public
Utilities F. r, ili. Within its pages,
you 'll find an article authored by me
and Paul Sotkiewicz, PURC's Director
of Energy Studies. Its pages 1..n. /.! us
the opportunity to address issues raised
at this year annual conference in
detail. We hope you enjoy the issue
and, as always, welcome your
comments.


from the political process and from the
industry. With the spirit that has made
our country the great nation it is to-
day, the people chose to create a regu-
latory system that had never been tried
before. Today, we are fortunate to reap
benefits of these long-ago decisions
and the adjustments that have been
made between then and now.
We have learned, for example, that
independence, legitimacy, credibility
and stability are important. A century
ago when the world's largest electric-
ity generator churned out 5,000 watts
of power and the largest high voltage
line ran 136 kilometers and carried
only 50 kilovolts, total electricity gen-
erating capacity in the United States
was 3,000 megawatts. Today, it's ap-
proximately a million megawatts. Elec-
tricity, back then, cost 24 cents per
kilowatt hour. In 2004, this cost was
less than 9 cents for residential cus-
tomers. This performance by U.S. utili-
ties is unmatched in the world, in no
small part because of our system of
regulation.
Federal Energy Regulatory Com-
missioner Nora Mead Brownell
opened the conference by noting sev-
eral significant lessons learned follow-
ing the August 2003 blackout, for ex-
ample, as she described areas of en-
ergy policy evolution, and challenges
being faced with the implementation


of the recent Energy Policy Act. She
was followed by Irene Flannery, a Se-
nior Vice President for the Universal
Service Administrative Company, on
changes in telecommunications sub-
sidy systems. Other speakers followed
these themes, emphasizing the
changes and challenges in both energy
and telecommunications. (Copies of
speakers' presentations and/or audio
files are available through the PURC
web site at www.purc.ufl.edu.)

Conference continued on page 4


FMEA Executive Director Barry Moline,
right, poses a question to FERC
Commissioner Nora Mead Brownell, center
panelist, during the 33rd Annual PURC
Conference in February. Seated to her right
is Irene Flannery, Senior Vice President of
Programs at USAC. At Commissioner
Brownell's left is PURC Director Mark
Jamison. Additional photos on page 2.


www.purc.ufl.edu


Vol.17









How Do You Know?
Mark A. Jamison, Ph.D., PURC Director


Recently a third-grade class tour-
ing a natural history museum learned
more than just history. A scientist was
explaining a fossil dig when a chipper
little girl asked, "How old is that fos-
sil?" 'I:: billion years old," knowingly
replied the scientist. "How do you
know that?" questioned the girl. "Well,
I'm a scientist," explained the paleon-
tologist. The little girl pressed on: "But
how do you know?" "I have instru-
ments that measure age." "How do
you know they're right?" "The manu-
facturer said so." "How do you know
the manufacturer is right?" The girl
and the guide went back and forth for
several minutes like this before the
scientist finally exclaimed, "Look, I
don't know! Okay? I just work here!"
Some things are easier to know
than others. Florida is well known for
its hurricanes. Indeed five of the seven
most intense hurricanes to ever hit the
United States landed on Florida, ac-
cording to the National Hurricane
Center. What is less widely known is
that Florida has the best experts on
dealing with storm preparation and
recovery.
Consider the following: National
Grid, a leading international electric
utility, partners with Florida Power &
Light on storm recovery specifically
to learn how FPL does it, and Con
Edison of New York asked FPL for
training in hurricane preparation and
recovery. Progress Energy's and
TECO's hurricane recovery prepara-
tions and response will be showcased
at the Edison Electric Institute's an-
nual convention. Southern Company
was recently featured at a conference
on emergency preparedness. Some
utility regulators in the northeast ask
their utilities to partner with Florida
electric companies in storm recovery
efforts so that their utilities can learn
from Florida.


Florida's electric utilities didn't rise
to this level of prominence through
idleness and luck, but rather through
hard work, preparation, and innova-
tion. Florida's electric utilities and the
Florida Public Service Commission
continue to look for ways to improve
upon their performance. As part of
this effort, the utilities are working
with PURC to coordinate information
sharing and cutting edge research on
how Florida can harden its electric in-
frastructure to better withstand and
recover from hurricanes. This effort
serves two purposes. First, it helps
ensure Florida's utilities remain at the
forefront of disaster preparation and
recovery methods that serve custom-
ers reliably and cost-effectively. To this
end, the utilities' managers and some
of the nation's top academic research-
ers met at the University of Florida in
early June to learn from each other and
to brainstorm on solutions to out-
standing problems. Second, such a
public effort provides transparency,
showing the public and government
officials that the state's utilities con-
tinue to push the envelope.
The importance of being an ac-
knowledged leader should not be di-
minished or ignored. Knowing
Florida's utilities and government of-
ficials are respected by their peers
should provide customers with the
confidence that preparations and res-
toration priorities have been consid-
ered with the utmost due diligence.
When mistakes appear whether real
or imagined second-guessing and
armchair-quarterbacking are less fre-
quent and have less validity.
As the third graders learned, some-
times knowledge is hard to get, but
constantly seeking to learn more is
worth the effort. 'P-


Above, former Texas PUC Chairman and
The Gee Strategies Group President Bob
Gee speaks about the regulatory climate
leading to the Energy Policy Act of 2005.
Seated from left are Allan Guyet, Director
ofthe Forida Energy Office andFlorida PSC
Commissioner J Terry Deason.


John W Mayo, left, Georgetown Professor
of Economics, Business and Public Policy
accepts the 2006 PURC Distinguished
ServiceAwardfrom Director MarkJamison.


Philadelphia University Dean of the School
of Media + Design Sean Carton speaks to
attendees about the changing demographics
of the digital generation.


2 "Leadership in Infrastructure Policy"










PURC Offers New Course in


Utility Training


This July, PURC launches its new-
est education initiative with a week-
long training engagement in Jamaica
titled Utility Ratemaking and Analy-
sis: An Advanced Course in Regula-
tion. The course, offered July 17-21,
2006 in Ocho Rios, is co-sponsored
by PURC and the Organisation of
Caribbean Utility Regulators
(OOCUR).
The course is the first advanced
one sponsored by PURC and its new-
est international offering since the in-
ception of the PURC/World Bank
International Training Program on
Utility Regulation and Strategy in
1997. That two-week program, deliv-
ered each January and July in
Gainesville, has educated more than
1,550 utility representatives in the pub-
lic and private sectors from 128 na-
tions.
Building on concepts presented in
the PURC/World Bank program, the
advanced course will focus on
benchmarking (using methodologies
such as data envelopment and stochas-
tic frontier analysis), price and revenue
cap analysis, mechanism design for
incentive regulation, financial state-
ment analysis, quantifying cross-sub-


sides in the context of price
affordability, designing economically
efficient interconnection prices, cost
analysis and regulatory impact analy-
sis. Session topics were identified by
OOCUR leaders as important for con-
tinued professional development
within their agencies.
Joining PURC Director Mark
Jamison and Director of Water Stud-
ies Sanford Berg are area speakers in-
cluding Carol Balkaran of the Regu-
lated Industries Commission in
Trinidad & Tobago; Carey Anderson
of the Office of Utilities Regulation
in Jamaica; Franklin Brown of the
Public Utilities Commission in the
Bahamas and Nigel Gordon of Cable
and Wireless in Jamaica.
The course is expected to be a
highly interactive one featuring a mix
of presentations, moderated discus-
sions, small group exercises, and case
studies. Participants are expected to
have at least three years of experience
with a regulatory commission. Al-
though not required, prior participa-
tion in the PURC/World Bank Inter-
national Training Program is recom-
mended. More information is available
online at www.purc.ufl.edu. >-


Progress Energy helps launch UF Water Institute


The University of Florida Water
Institute is primed to launch into its
role as the focal point for issues fac-
ing Florida's greatest natural resource
thanks to its founding sponsor,
Progress Energy.
The Progress Energy Foundation
is giving $1.2 million to establish an
endowment for the Water Institute
and provide a hub for water-related
research, education and public out-


reach programs based at the state's
largest and most comprehensive re-
search university.
"Progress Energy has been an
important partner on the Water Insti-
tute project even before its inception,"
said UF President Bernie Machen.
"We welcome their long-term com-
mitment to the sustainability of


Institute continued on page 4


Papers and Presentations

"A Law Enforcement Perspective
of Electricity Deregulation," by PURC
Reseach Associate Ira Horowitz ap-
peared in the May-June 2006 Electric-
ity Market Reform and Deregulation
issue of E This paper summa-
rizes the deficiencies in market over-
sight and enforcement that left the
deregulated California electricity mar-
ket prone to potential abuse, how
some market agents exploited those
deficiencies and the AG's recommen-
dations for improving enforcement.
"Designing Pareto-superior De-
mand-response Rate Options," by
Horowitz and C. K. Woo appeared in
the May-June 2006 Electricity Market
Reform and Deregulation issue of
E. This paper explores how three
rate options -real-time pricing, time-
of-use pricing, and curtailable/inter-
ruptible service- encourage custom-
ers to alter their electricity usage in
response to changes in the electricity
prices.
"Consistency in Performance
Benchmarking: The Peru Water Sec-
tor," by Sanford V. Berg and Chen Lin
has been accepted for publication in
an upcoming issue of Appled Econom-
ics. This article examines the consis-
tency of water utility performance
rankings in Peru.
"Performance Assessment and
Monitoring of Water Infrastructure:
An Empirical Case Study of
Benchmarking in Uganda," by PURC/
World Bank International Training
Program alumnus Silver Mugisha, has
been accepted for publication in an
upcoming issue of Water Policy. This
paper outlines the potential for inter-
nal incentive contracts in the context
of Ugandan water, emphasizing
proper contract design, competition
for managerial responsibility, effective


Research continued on page 4


www.purc.ufl.edu 3






Conference continued from page 1

Susan Story, President and CEO of
Gulf Power Company, closed the con-
ference by noting the challenges of
generating reliable and affordable en-
ergy in a growing, populous state. She
examined the conventional and alter-
native energy sources to consider as
the state's growing demand for elec-
tricity rises by an expected 30 percent
during the next 10 years, approaching
60 percent by 2020. In a later meeting
with students in the Warrington Col-
lege of Business, she shared experi-
ences from her career at Gulf Power,
spanning work as a nuclear power
plant engineer and various managerial
positions.
Next year, we continue our two-
year salute marking the centennial of
utility regulation in the U.S. at the 34h
Annual PURC Conference titled,
"1907-2007, A Century of Utility
Regulation: Looking Forward to the
Next Hundred Years." The conference
is scheduled February 15-16, 2007 in


Gainesville. We look forward to see-
ing you there. 'z-


Institute continued from page 3

Florida's water resources."
The UFWI, formally created in
2004, is expected to host an annual
summit of government and industry
leaders involved in Florida's water-re-
lated issues.
Wendy Graham, a professor and
chairwoman of the UF's agricultural
and biological engineering depart-
ment, has been named the institute's
first director. She works closely with
more than 200 UF faculty members
across multiple disciplines, including
PURC Director of Water Studies
Sanford V. Berg, a member of the
institute's launch team.
Progress Energy's gift is eligible for
$900,000 in matching funds from the
State of Florida's Major Gifts Trust
Fund. More information can be found
at www.waterinstitute.ufl.edu. 9_*


Research continued from page 3

business planning, performance moni-
toring, and the use of managerial in-
centives.
In April, Mark Jamison presented
his paper "Toward an Economic
Theory of Leadership: Leading Adap-
tive Change" at the International In-
dustrial Organization Society confer-
ence in Boston, MA. His paper relates
recent research in neuroscience to the
problem of someone providing lead-
ership in an organization that needs
to adjust to changes in its environ-
ment.
"Getting on the Balcony: Leader-
ship Challenges in Regulation," by
Mark A. Jamison, Robert Rowe and
Brett A. Perlman was published in the
December 2005 issue of The Electricity
Journal.
Visit the PURC web site,
www.purc.ufl.edu to find these and
other papers. P-


Calendar of Events


June 19-30, 2006
20th PURC/World Bank
International Training Program
on Utility Regulation and
Strategy
Gainesville, FL

July 17-21, 2006
Utility Ratemaking & Analysis:
An Advanced Course in
Regulation
Co-Sponsored by PURC and
OOCUR
Ocho Rios, Jamaica

July 29, 2006
PURC/CLA Executive Educa-
tion Workshop for Utility
Commissioners: Leadership in
Utilities Policy
San Francisco, CA


October 30, 2006
Fall Roundtable on Telecom-
munications
Co-sponsored by PURC and
CIBER.
Turnbull Conference Center
Tallahassee, FL

October 31, 2006
Fall Roundtable on Energy
Co-sponsored by PURC and
CIBER.
Turnbull Conference Center
Tallahassee, FL

Details online at
www. purc. ufl. edu.


Sponsors and Representatives on
the PURC Executive Committee:

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

PURC
University of Florida
Warrington College of Business
PO Box 117142
Gainesville FL 32611-7142
Web site: www.purc.ufl.edu
E-mail: purc@cba.ufl.edu
Ph: 352/392-6148
FAX: 352/392-7796




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