Local Government Action and Antitrust Policy: An Economic Analysis

At least partly as a result of the Supreme Court decision in Community Communications Co. v. City of Boulder, cities are facing antitrust challenges to their rights to franchise cable television systems. Other municipal activities have been similarly challenged. The prospect of costly and uncertain antitrust litigation challenging local government actions will restrict the scope and extent of local regulatory activity. Such restrictions could, in turn, preempt city residents\u27 ability to choose, through their elected representatives, the goods and services they prefer. This Article proposes that as a mater of policy the burden of proving a municipal antitrust violation should be on those who seek to restrict municipal action. This Article discusses the merits behind the general case for municipal antitrust immunity and the specific circumstances in which cities might face liability under antitrust laws. Further, this Article sets out three criteria by which the potential for adverse effects of a city\u27s action may be determined, then assesses the leading state action cases using these criteria. Finally, this Article concludes by describing the appropriate policies for dealing with potentially inefficient city actions and makes specific recommendations consistent with the current case law

Optimal Energy Efficiency Policies and Regulatory Demand-Side Management Tests: How Well Do They Match?

Under conventional models, subsidizing energy efficiency requires electricity to be priced below marginal cost. Its benefits increase when electricity prices increase to finance the subsidy. With high prices, subsidies are counterproductive unless consumers fail to make efficiency investments when private benefits exceed costs. If the gain from adopting efficiency is only reduced electricity spending, capping revenues from energy sales may induce a utility to substitute efficiency for generation when the former is less costly. This goes beyond standard “decoupling” of distribution revenues from sales, requiring complex energy price regulation. The models’ results are used to evaluate tests in the 2002 California Standard Practice Manual for assessing demand-side management programs. Its “Ratepayer Impact Measure” test best conforms to the condition that electricity price is too low. Its “Total Resource Cost” and “Societal Cost” tests resemble the condition for expanded decoupling. No test incorporates optimality conditions apart from consumer choice failure.Electricity, energy efficiency, demand-side management, utility regulation,

Energy Efficiency Policy: Surveying the Puzzles

Promoting energy efficiency (EE) has become a leading policy response to greenhouse gas emissions, energy dependence, and the cost of new generators and transmission lines. Such policies present numerous puzzles. Electricity prices below marginal production costs could warrant EE policies if EE and energy are substitutes, but they will not be substitutes if the energy price is sufficiently high. Using EE savings to meet renewable energy requirements can dramatically increase the marginal cost of electricity. Rejecting “rationality” of consumer energy choices raises doubts regarding cost–benefit analysis when demand curves may not reveal willingness to pay. Decoupling to guarantee constant profit regardless of use contradicts findings that incentive-based mechanisms outperform cost-of-service regulation. Regulators may implement EE policies to exercise buyer-side market power against generators, increasing consumer welfare but reducing overall economic performance. Encouraging utilities to take over potentially competitive EE contradicts policies to separate competitive from monopoly enterprises.energy efficiency, energy policy, decoupling, monopsony, vertical integration

Is the Benefit of Reserve Requirements in the “Reserve” or the “Requirement”?

Reliability in electricity markets is, in many respects, a public good, in that one supplier’s failure to meet its customers’ demands can cause failure throughout the grid. This creates a blackout externality. One of the remedies for a blackout externality is a reserve requirement, where load-serving entities have capacity on hand to meet demand in the case of unexpected surges in demand or unit failures. Modeling the magnitude of the externality as a positive function of use and negative function of capacity reveals that a benefit of capacity requirements is that covering their costs imposes a tax on usage. After illustrating this possibility, a model addressing the sector as a whole, where spot markets can resolve individual but not overall shortfalls, illustrates that capacity requirements should be increased or decreased to exploit this usage tax effect.electricity, reliability, reserve requirements, capacity

Energy Efficiency: Efficiency or Monopsony?

The cliché in the electricity sector, the "cheapest power plant is the one we don’t build," seems to neglect the benefits of the energy that plant would generate. Those overall benefits could be countered by benefits to consumers if "not building that plant" was the result of monopsony. A regulator acting as a monopsonist may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare.energy efficiency, monopsony, consumer welfare, total welfare, electricity

The Challenges of Climate for Energy Markets

Among the many complex issues of technology, governance, and market design affecting the electricity sector, climate policy has become dominant. From the perspective of a nonspecialist looking at this changing dominance, a quiz illuminates some of the peculiar uses of language one can find in climate change and energy efficiency policy. Six economic challenges are then examined: cap-and-trade vs. taxes, non-price regulations, energy efficiency policies, mitigation vs. adaptation, trade effects, and transmission planning. Three additional challenges affect not just the means to the climate policy end but also the end itself: the “fat tails” problem, discount rates, and whether environmental protection should be evaluated by aggregating willingness to pay across persons. Planners in the public and private sectors need to be aware of not only the economic policy challenges but also arguments that may influence the intensity of the climate policies with which they have to cope.climate cahnge, energy policy, electricity

Do Easy Cases Make Bad Law? Antitrust Innovations or Missed Opportunities in United States v. Microsoft

Much has been said and written regarding the legal and economic merits of U.S. v. Microsoft and the practicality of antitrust in high technology industries. The focus here is what this prominent case says about the role of economics in general, and in particular, "post-Chicago" approaches. Is antitrust economics and law on a progressive path, producing more refined analyses of industrial practices? Or is the path more like that of a pendulum, with doctrines coming back in style that had once fallen out of fashion? U.S. v. Microsoft suggests that the path of antitrust may be cyclical rather than progressive. The crux of the argument is that in U.S. v. Microsoft , the three aspects of an economically sound antitrust case, theory, evidence, and remedy, were largely independent of, if not inconsistent with, each other. Roughly speaking, the theory focused on monopolizing application platforms, the evidence spoke to monopolizing browser distribution, and the remedy treated applications themselves as the competitive lynchpin. The plaintiffs' success at trial suggests, in contrast to the older aphorism that , "hard cases make bad law," that this "easy case" may be responsible for "bad law," where an "easy case" is one where the victory at trial was so compelling and "bad law" refers to an ultimately reduced role for economics as an antitrust policy guidepost. These observations need not imply that Microsoft's conduct was benign. Isolating the theory, evidence, and remedy from the case, one can construct three potential rationales for finding Microsoft's actions anticompetitive. We also identify three additional stories based on tying with transaction costs, reputation-preserving predatory pricing, and intellectual property. That none of these stories were told suggests that U.S. v. Microsoft signals a return to pre-Chicago antitrust. Those preferring a less constraining role for economics in antitrust courts may agree with this assessment without finding it disagreeable. Moreover, there may be no better alternative, legislation or regulation need not lead to better outcomes. It may offer small comfort to observe that antitrust is not the only policy area in which progress in economic theory may ironically lead to regress in its importance.

Electricity Markets and Energy Security: Friends or Foes?

For a host of economic, geopolitical, and environmental reasons, the security of energy supplies has moved to the forefront of U.S. policy concerns. Here, I address the extent to which the U.S. electricity sector is affected by these factors and, in turn, whether increased electricity competition exacerbates them. After defining four dimensions of energy security that might pertain to electricity, I examine the role of global energy markets on that sector. Oil is currently used to generate only a small fraction of U.S. electricity supplies, although as recently as the late 1970s it generated about one-sixth of the total. Oil markets can affect electricity indirectly via substitution with natural gas. Competition in electricity markets should improve energy security by adding redundancy, but competition is threatened by unanticipated price increases, peak-load management, and risks associated with separating competitive generation from regulated transmission and distribution. Other complications include residential aversion to competition, residual market power, and the aspiration to reduce demand through conservation policies. The central security issue has been and remains the degree of conflict between competition and central control necessary to maintain reliability of the grid.electricity markets, electricity market restructuring, energy policy, energy security

The Challenges of Climate for Energy Markets

Among the many complex issues of technology, governance, and market design affecting the electricity sector, climate policy has become dominant. From the perspective of a nonspecialist looking at this changing dominance, a quiz illuminates some of the peculiar uses of language one can find in climate change and energy efficiency policy. Six economic challenges are then examined: cap-and-trade vs. taxes, non-price regulations, energy efficiency policies, mitigation vs. adaptation, trade effects, and transmission planning. Three additional challenges affect not just the means to the climate policy end but also the end itself: the “fat tails†problem, discount rates, and whether environmental protection should be evaluated by aggregating willingness to pay across persons. Planners in the public and private sectors need to be aware of not only the economic policy challenges but also arguments that may influence the intensity of the climate policies with which they have to cope.climate change, energy policy, electricity

Energy Efficiency: Efficiency or Monopsony?

The cliché in the electricity sector, the “cheapest power plant is the one we don’t build,” seems to neglect the benefits of the energy that plant would generate. Those overall benefits could be countered by benefits to consumers if “not building that plant” was the result of monopsony. A regulator acting as a monopsonist may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare.energy efficiency, monopsony, consumer welfare, total welfare, electricity