Daniel R. Hollas

A data envelopment analysis of gas utilities' efficiency

This study examines the Natural Gas Policy Act of 1978 and Federal Energy Regulatory Commission (FERC) policies that culminated in Order 636 in 1992. The regulatory environment in which natural gas distribution utilities operate was altered. FERC policies forced local gas distribution utilities into an increasingly competitive environment. Restructuring of the industry may affect economic efficiency. Data Envelopment Analysis is used to examine the economic efficiency of gas distributors during 1975–94. Federal policy appears to lead to a reduction in scale due to restructuring and more competition. Reduced scale economies have not altered the economic efficiency of the utilities.

Determinants of regulatory policies toward competition in the electric utility industry

SummaryStatistical results from this study generally support the Stigler-Peltzman theory of regulation. The only finding not consistent with Peltzmans formulation of the theory is that electd officials are more likely to favor procompetitive policies than appointed officials. Peltzman has argued this should be an unimportant factor. For public policy purposes, however, it seems that any movement toward elected regulatory commissions would tend to foster pro-competitive policies, at least in the short run.Data reveal that an increase in realized monopoly power of the utility increases the probability of hostile PSE policies toward competition. An increase in average value added in manufacturing and a decrease in the states per capita income increased the probability of favorable PSC policies toward competition. Also, the more powerful are natural gas interests, the more hostile are commission policies toward competition.These empirical findings refute the hypothesis that regulatory policy is somehow an exogenous variable which results from ad hoc political and administractive factors. Instead, it appears that regulatory policy is a direct result of economic factors.

Downstream Gas Pricing in an Era of Upstream Deregulation

State public service commission regulation of gas utility pricing is examined during the period of wellhead price deregulation. A model which incorporates asymmetry in price setting during a period of changing input costs is estimated. Statistical analyses suggest public service commission regulation slowed the increase in gas utility prices during periods of rising costs. Gas utility pricing was not monitored as closely when purchased gas prices fell, thereby altering the rate structure in favor of industrial customers. Federal Energy Regulatory Commission policies designed to promote competition by restructuring the transmission sector of the gas industry after 1985 appear to have suppressed retail prices in industrial markets.

The effects of ownership form on profit maximization and cost minimization behavior within municipal and cooperative electrical distribution utilities

Abstract This paper examines the economic efficiency of a sample of municipal and cooperative Tennessee Valley Authority electric distributors. Evidence of cost-minimizing behavior in the use of labor and purchased electricity is exhibited by both organizational forms. Cooperatives appear to be somewhat more absolute price efficient than municipals. However, neither type of utility appears to maximize profits. Municipals appear to be more technically efficient than cooperatives.

Ownership Form and Rate Structure: An Examination of Cooperative and Municipal Electric Distribution Utilities

There is a substantial body of research which suggests that the structure of property rights incorporated into an organization materially affects the decisions of its managers. Furubotn and Pejovich [8] and DeAlessi [5; 6] provide excellent reviews of the literature on property rights. DeAlessi [2] noted that ownership interests in political firms are virtually non-transferable, which prevents specialization in ownership. This in turn may cause political firm managers to increase their own personal welfare at the expense of the firm. The effect upon not-for-profit firms may be the same since a number of studies that examined the relative economic performance of publicly owned vs. privately owned firms often found significant differences. The Tennessee Valley Authority (TVA) sells wholesale power to two prominent types of presumed not-for-profit, electric distribution firms: municipals (publicly owned) and cooperatives (privately owned). These firms are excellent subjects for the study of how these different property rights affect the rate structures of not-for-profit electric distribution utilities. Alchian and Demsetz [1] stated that the owners of a corporation suffer from an attenuation of their property rights due to their reduced control over managers resulting from an inability to easily terminate managers. This problem may be more prevalent in both municipal and cooperative firms than in privately owned profit maximizing firms. They also noted that, in not-for-profit firms, the future consequences of current managerial decisions are not capitalized into the value of the firm. As a result, monitoring and bonding costs are high, and managers of such firms

An Examination of the Relative Economic Efficiency of Mutual vs. Stock Savings Institutions

This article employs a nonlinear system of Cobb-Douglas profit and input demand equations to analyze price and technical efficiency in a sample of presumably not-for-profit mutual and presumably profit-maximizing stock savings institutions. Theories of property rights and agency are reviewed to provide predictions of price efficiency (i.e., profit maximization and cost minimization behavior), and technical efficiency. The study makes several contributions to the literature. First, it examines the effect of ownership form on both price and technical efficiency. Second, it separately examines the effect of regulatory form on both price and technical efficiency. The model enables us to analyze the separate effects of ownership and regulatory form across a heterogeneous sample of firms. We also analyze the effects of risk in the form of two separate regulatory variables and the effect of market share on economic efficiency.

An examination of the economic efficiency of class I railroads: A profit function analysis

This paper uses a system of translog profit and input demand equations to analyze price and technical efficiency in Class I railroads for the period 1978–1983. The results indicate that railroads are neither profit maximizers nor cost minimizers, that capital expenditures increase technical efficiency, and that deregulation led to greater economic efficiency. The average length of haul is negatively related to economic efficiency; track miles are negatively related to economic efficiency, market share positively affects economic efficiency; and, the ratio of freight to total revenue positively affects economic efficiency.

An estimation of the deadweight and x-efficiency losses in the municipal electric industry

Abstract This article examines X-efficiency gains from competition (duepoly) in the municipal electric industry. Empirical analysis is conducted through estimation of monopoly and duepoly long run marginal cost. Inefficiencies are manifested primary through increased marginal cost of nonproduction operations. Empirical results indicate that other studies may have significantly underestimated the total losses from monopoly. However, most of the gains from competition pressure are nonallocative. Thus, interest in public policies designed to increase competitive preassure may depend upon whether the objective is allocative efficiency, redistribution of income, or both.

Firm/interruptible gas pricing patterns in a regulated environment

ConclusionThis study provides empirical tests for the effects of rate base regulation, curtailment priorities, fuel clauses, and elected commissioners on firm/interruptible gas pricing patterns. These regulations do alter observed pricing patterns with curtailment priorities, fuel clauses, and elected commissioners all producing net social gains. Rate of return regulation imposes social costs resulting in a net decrease in social welfare. Ignoring the political influences upon regulators, regulation generally encourages consumption at the peak relative to the off-peak. Nonetheless, overall social welfare is improved if all four types of regulatory characteristics are present, since most rates are reduced from their monopoly levels.

Empirical Tests for the Effect of Regulation on Firm and Interruptible Gas Service

This paper argues that firm and interruptible natural gas prices are comparable to peak and off-peak prices in the electric-utility industry, and the observed patterns of firm-interruptible natural gas contracts are not a random occurrence, but are a function of systematic variation in factors which characterize or delineate the various natural gas distribution systems, and that these factors are economic in nature. One of the most-important economic factors is the presence and effectiveness of government regulation. More specifically, through a proxy test, the hypothesis is analyzed that peak prices are reduced by rate-of-return regulation. Although there probably are net welfare gains from rate-of-return regulation, the decision to add additional storage capacity is quite sensitive to regulation, thus largely offsetting the consumer surplus gained from a lower peak-price under regulation.