David Loomis
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To mimic a competitive market outcome even
when the underlying market is not
competitive
“other goals”
◦ Fair and just rates
◦ Specific policies regulators believe to be in
customers’ best interests
◦ Universal service
◦ Affordability
◦ Economic development
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Maximizes the sum of consumer and
producer surplus
Productive and allocative efficiency
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Natural Monopoly
◦ Firms builds pipeline costing $365 million with
capacity of 1 million cubic meters; has to repay
$36.5 million/yr
◦ If it transports 100 cubic meters per day,
AC=$1,001/cubic meter
◦ If it transports 1,000 cubic meters per day,
AC=$101/cubic meter
◦ Also AC of building pipe decreases as size of pipe
increases/cost=circumference, production=volume
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Barriers to entry
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Uncertainty about costs – imperfect
information
Other regulatory interventions – Renewable
Portfolio Standards (RPS) – increasing costs
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See Notes