David Loomis
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Definition is difficult
Changes with technology and customer
preferences
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Voice
Video
Data
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Wireline technologies
Wireless technologies
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Technology / Internet Protocol
Telecommunications Act of 1996 (TA ’96)
Economics – reduce costs, increase revenues,
maximize profits
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Landline voice
High speed Internet Access
Cable TV / Entertainment
Wireless voice/data
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Long Distance Voice
Local Voice
Graph 1.1
Average Revenue Per Minute for Interstate & International Calls (Restated in 2003 Dollars),
1984-2003
$0.60
Average Revenue per Minute
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Graph 1.2
AT&T's Share of Total Toll Service Revenues, 1984-2001
100.0%
Share of Total Toll Service Revenues
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Year
1994
1995
1996
1997
1998
1999
2000
2001
Graph 1.4
Total Monthly Charges for Local Services in Urban Areas, 1986-2004
$26.00
$25.00
Total Month Charges (in Dollars)
$24.00
$23.00
$22.00
$21.00
$20.00
$19.00
$18.00
$17.00
$16.00
$15.00
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Graph 1.5 Competitive Local Exchange Companies' (CLEC) Market Share, 1999-2005
25.0%
20.0%
Market Share
15.0%
10.0%
5.0%
0.0%
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Date
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Graph 1.7
Number of Mobile Wireless Subscribers, 1984-2004
200,000,000
180,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
Date
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
Dec-92
Dec-91
Dec-90
Dec-89
Dec-88
Dec-87
Dec-86
Dec-85
0
Dec-84
Mobile Wireless Subscribers
160,000,000
Graph 1.8
Mobile Wireless Telephone Service: Average Minutes of Use per Month, 1993-2003
700
600
Average MOU per Month
500
400
300
200
100
0
1993
1994
1995
1996
1997
1998
1999
Year
2000
2001
2002
2003
2004
Ju 87
nD 88
ec
Ju 88
nD 89
ec
Ju 89
nD 90
ec
Ju 90
nD 91
ec
Ju 91
nD 92
ec
Ju 92
nD 93
ec
Ju 93
nD 94
ec
Ju 94
nD 95
ec
Ju 95
nD 96
ec
Ju 96
nD 97
ec
Ju 97
nD 98
ec
Ju 98
nD 99
ec
Ju 99
nD 00
ec
Ju 00
nD 01
ec
Ju 01
nD 02
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Ju 02
nD 03
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Ju 03
nD 04
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-0
4
ec
D
Average Monthly Bill (in Dollars)
Graph 1.9
Mobile Wireless Telephone Service: Average Monthly Bill, 1987-2004
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
Date
Graph 1.10
Average Monthly Rates for Basic Services, 1997-2004
$14.00
Monthly Rate (in Dollars)
$13.50
$13.00
$12.50
$12.00
$11.50
$11.00
1997
1998
1999
2000
2001
Year
2002
2003
2004
Graph 1.11
Average Total Monthly Rates, 1995-2004
$50.00
$45.00
Average Total Monthly Rates (in Dollars)
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
1995
1996
1997
1998
1999
2000
Years
2001
2002
2003
2004
Graph 1.12 Broadband Technologies' Market Share
Other Wireline, 2.04%
Fiber or Powerline, 1.06%
Satellite or Wireless, 0.72%
ADSL, 37.20%
Coaxial Cable, 58.99%
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Generation
Transmission
Distribution
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Flows of electricity across the network of
interconnected power lines cannot be
directed.
Electricity must be produced on demand so
blackouts don’t occur - can’t be stored; must
always be in balance.
Developments of markets requires reforms by
both state and federal agencies.
David G. Loomis 309-438-7979
7/12/2016
28
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Generation - competitive?
Transmission - natural monopoly - regulated
by FERC, Federal Energy Regulatory
Commission
Distribution - natural monopoly - regulated
by state commissions - ICC, Illinois
Commerce Commission
David G. Loomis 309-438-7979
7/12/2016
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David G. Loomis 309-438-7979
7/12/2016
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IL Electric
Generation by Source 2006

0%
1%
1%
0%
Petroleum
Natural Gas
Coal
47%
Nuclear
51%
Hydro
Other
David G. Loomis 309-438-7979
7/12/2016
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David G. Loomis 309-438-7979
7/12/2016
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High efficiency gas turbines
◦ lower construction costs
◦ lower operating costs
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Compared to new coal-fired generators
New smaller units generate electricity at the
same low cost as very large units that were
built only a few decades ago
David G. Loomis 309-438-7979
7/12/2016
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Because of smaller and lower cost plants,
generation has moved from a natural
monopoly to potentially competitive industry.
But if you generate, how do you get it to
consumers?
David G. Loomis 309-438-7979
7/12/2016
34
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PURPA 1978 required utilities to buy from
NUGS, non-utility generators
Energy Policy Act of 1992 -
◦ transmission-owning utilities had to deliver power
from generators to other utilities or wholesalers at
reasonable, non-disc. Cost-based rates
◦ FERC 888 procedures for this, how to compensate
for losses
David G. Loomis 309-438-7979
7/12/2016
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Regulated, natural monopoly service
potential bottleneck
Midwest ISO, Independent System Operator
David G. Loomis 309-438-7979
7/12/2016
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Distribution has high fixed cost - natural
monopoly
Retail sale does not have high fixed cost potentially competitive
David G. Loomis 309-438-7979
7/12/2016
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In 2006, 239 investor-owned electric utilities
in US.
2,009 publicly owned
912 cooperatives
10 Federally-owned
David G. Loomis 309-438-7979
7/12/2016
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243 IOU’s, investor-owned utilities
◦ only 7.6 percent of total
◦ 75.6 percent of MWH (megawatthour) sales to
ultimate consumers
◦ 45.0 MWH for resale
◦ Most electricity comes from IOUs that are integrated
- generation, transmission, distribution, retail sale
David G. Loomis 309-438-7979
7/12/2016
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David G. Loomis 309-438-7979
7/12/2016
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Avg rev. per KWH for ultimate consumers
◦ Overall US is 8.90 cents
◦ Illinois is 7.07 cents
David G. Loomis 309-438-7979
7/12/2016
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David G. Loomis 309-438-7979
7/12/2016
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Company
1998
1999
2002
CILCO
7.49
7.52
7.70
Ameren-CIPS
8.10
7.56
7.39
ComEd
10.66
9.30
9.13
IL Power
9.58
8.41
8.29
MidAmerican
8.49
8.32
8.10
Ameren-UE
7.09
6.71
6.57
David G. Loomis 309-438-7979
7/12/2016
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$203 Billion (3.2% of GDP)
residential $85 B
commercial $63B
industrial $48 B
David G. Loomis 309-438-7979
7/12/2016
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One of the most capital intensive industries
179 largest IOUs
◦ $575B in assets
◦ Almost 5% of gross capital stock of all industries
David G. Loomis 309-438-7979
7/12/2016
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David G. Loomis 309-438-7979
7/12/2016
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How do you promote competition and not
just deregulate?
How do you separate generation from T&D
when you need instant load balancing?
If IOUs keep generation, how do you assure
non-discrimination?
David G. Loomis 309-438-7979
7/12/2016
47
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Wellhead  pipeline  City gate  LDC 
customer
direct access
Few economies of scope - little vertical
integration
ECO 436 David Loomis 309-4387979
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In 1981, 12,000 field producers, all markets
unconcentrated
1954 Supreme Court, Phillips Petroleum v.
Wisconsin - ruled that producers were able
to exact “excessive” prices and that Natural
Gas Act of 1938 authorized FPC to regulate
wellhead prices.
Wellhead prices that were sold interstate
were regulated since 1954
ECO 436 David Loomis 309-4387979
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2 tiered gas prices - interstate gas subject to
Federal regulation
◦ intrastate gas priced much higher
◦ caused allocative distortion
ECO 436 David Loomis 309-4387979
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1978 - Natural Gas Policy Act
◦ old gas - dedicated to interstate
commerce before NGPA
 continue price ceilings (amt. Of old
gas declines as wells are depleted)
◦ new gas - no price ceiling on Jan. 1,
1985
 price ceilings from 1978-1985
gradually raised
ECO 436 David Loomis 309-4387979
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1989 Natural Gas Wellhead Decontrol Act
lifted all remaining wellhead ceiling by 1993.
ECO 436 David Loomis 309-4387979
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Year
$/Mcf (NovApr)
Percentage
Increase
1998-1999
4.78
-
1999-2000
5.67
18.7%
ECO 436 David Loomis 309-438-7979
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Company
1999 (in cents/therm)
CILCO
61.54
Ameren-CIPS
67.62
ILPower
60.15
MidAmerican
54.40
NICORGas
43.06
PeoplesGas
65.54
Ameren –UE
72.05
ECO 436 David Loomis 309-438-7979
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
BRITISH THERMAL UNIT (Btu) -- The standard
measure of heat energy. It takes one Btu to
raise the temperature of one pound of water
by one degree Fahrenheit at sea level. For
example, it takes about 2,000 Btus to make a
pot of coffee. One Btu is equivalent to 252
calories, 778 foot-pounds, 1055 joules, and
0.293 watt-hours. Note: In the abbreviation,
only the B is capitalized.
ECO 436 David Loomis 309-4387979
57
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MMBtu = Million BTU (British Thermal Unit)
THERM - One hundred thousand (100,000)
British thermal units (1 therm = 100,000 Btu).
ECO 436 David Loomis 309-4387979
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