The Utility Industry

The difference between consider of exit for a public utility and the rate set up is that the rate base is the after-tax earnings while the rate of return is the rate allowed by the regulatory body ().

The argument for maintaining regulating of utilities came from the fact that demand for voltaicity is relatively inelastic, meaning that in that location is a considerable amount of variance which can put across in the price before there is an appreciable miscellany in the quantity demanded by consumers. In addition, the price cracking of demand is larger in the long-run than in the short-run, and this holds genuine for all types of consumers, including residential consumers as well as industrial and commercial consumers. Price elasticity tends to be greater for industrial demand over residential demand (Howe and Rasmussen 34).

Because of this inelasticity of demand, regulators came to view themselves as working to protect the public interest against the predatory price techniques of the utility industriousness. If there were not regulation, electric companies would charge steep prices in order to maximize their own wampum. In addition, the industry itself has fought to maintain regulation since, although it places a limit on the profits earned by the companies, regulation likewise creates barriers for new competitors and therefore helps companies maintain their market share and longterm lucrativeness (Copeland 292).

Copeland, David S. "Requiring Transmission Access by Electric Utilities." Antitrust Law Journal (Win 1996): 291-302.

Worsham, James. "States Plug In to Deregulation." Nation's Business (Apr 1998): 6.

Graebner, Lynn. "Changing Electricity Market Jolts SMUD's Power Purchases." capital of California Business Journal (Apr 3, 1998): 10.

In California, there is a " realistic exchange," modeled after the Nasdaq Stock Market trading placement, which permits deregulated electric power to be traded as a commodity. Wholesale dictation for kilowatt hours from suppliers as far away as Canada and Texas began short after the market (which has no trading floor) opened for business line in April. While advocates of deregulation tout this as an font of how prices for consumers will fall (those in Canada and Texas in this instance), critics disagree. The exchange sets solo wholesale prices, not retail, and only 25 percent of the add up price of an electric bill comes from the retail cost of power. The remain 75 percent comes from the transport of power to the customer. Nonetheless, the exchange moldiness be viewed as a significant effect of deregulation, and also one of the reasons that the deregulation was delayed while problems in the system were worked out (Hamblen 14).

Howe, Keith M., and Eugene F. Rasmussen. Public Utility Economics and Finance. Englewood Cliffs, NJ: Prentice-Hall.

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