Public Utility Economics: International Infrastructure ECO 4934, Section Maria Luisa Corton. Monday & Wednesday January 7 & 9, 2008

Transcription

1 Public Utility Economics: International Infrastructure ECO 4934, Section 5799 Maria Luisa Corton Monday & Wednesday January 7 & 9, 2008

2 Review Syllabus Grading Teams Consulting Project Resources : PURC Body of knowledge World Bank/PURC training event regulatory agencies websites & related Public Utilities

3 Public Utilities A private business organization, subject to governmental regulation, that provides an essential commodity or service, such as water, electricity, transportation, or communication, to the public. They are private or public service facilities, such as gas, electricity, telephone, water and sewer that are provided as part of the development of the land.

4 Public Utilities Examples of utilities are: Electricity which can be electric power transmission or electricity distribution Drinking water purification and distribution Sewage treatment and disposal Natural gas distribution Public transport Telecommunications, such as cable television and telephone lines Roads, including toll ways

5 Class Outline Course Objective Elements, aspects and components of public utilities economic environment Market structure Monopoly Long & short run

6 Course Objective To examine issues in infrastructure industries: telecommunications, energy, water, natural gas and transportation Faced by policy-makers and managers around the world Sector reform Introducing regulatory agencies Opening to private investment Unbundling...

7 Elements (aspects) of Public Utilities Economic Environment International Perceptions Input Markets Capital, Labor Entrepreneurship Natural Resources General Economic Conditions Industry Conditions Technology, Demand, Information Experience Global National Institutional Conditions Regulatory Governance Design Clarity of Roles Autonomy Accountability Processes Participation Transparency Predictability Regulatory Incentives (Policies) Permissible revenues, setting tariffs, modifying tariffs Tariff Reviews Sharing Rules Structure Number of Firms Entry Conditions Differentiation Behavior Prices, Investment Service Quality Performance Earnings Productivity Advance Service Penetration Production Efficiency PURC - University of Florida

8 Market Structure Market: all firms and individuals who are willing or able to buy & sell a product Market Structure: set of characteristics that affect price/output decisions; it describes the competitive environment in the market for any good or service

9 Elements of Market Structure 1. Number and size distribution of buyers and sellers 2. Product differentiation: real or perceived differences in the quality of goods 3. Availability and Cost of information about prices and output quantities 4. Entry and exit conditions: regulatory barriers; capital requirement; standards for skilled labor

10 Examples of Problems for the Consulting Project A regulator from Africa needs to develop quality of service indicators for the electricity system, to be used in the design of incentives for improving service reliability and customer relations. Your assignment is to recommend a limited set of indicators and to recommend an incentive scheme that could be implemented. Document your recommendations. A water regulator from an Asian nation has been asked by the Ministry of Water and Sanitation to compare the performance of water utilities in that country with that of comparable nations in the region. The regulator seeks your assistance in preparing a Draft Report. A transportation regulator from Central Europe is trying to document its responsibilities to make a report to the legislature. Several survey templates for evaluating regulatory frameworks are available in the Brown, Stern, & Tenenbaum book, Handbook for Evaluating Infrastructure Regulatory Systems (downloadable pdf):

11 Examples of Problems for the Consulting Project Recommendations for Creating a Multi-National Regulator in West Africa Context: Promotion of "long-term co-operation in the energy sector"is essential to the attainment of the long-term political goal of the Economic Community of West African States (ECOWAS). In response to this objective, electricity companies of ECOWAS Member States came together to create a regional electricity market, the West African Power Pool (WAPP). While sector liberalization policies resulted in the creation of national r ECOWAS has therefore started the process to establish a regional regulator for the sector and has recruited a consultant to support this process. The Consultant has since drafted two documents: POWER SECTOR REGIONAL REGULATION MECHANISMS MISSIONS AND POWERS OF THE FUTURE REGIONAL REGULATORY BODY Task: Review the two documents in line with international practices and define, in your opinion, the appropriate regulatory mechanism, and missions and powers for such a multi-national regulator.

12 Examples of Problems for the Consulting Project Environmental Impacts of Wind Turbines (Barbados) Context: A privately owned electricity supplier in a small island state plans to generate some of its power through wind turbines. Some cocerns being raised by residents near the planned location on the likely impact on their environment and by others on the resulting cost and quality of service to the consumer. Task : What are some of the regulatory issues/concerns that the regulator should be focusing on? Are there any studies or informaiton from other countries that may be useful to the regulator in ensuring sound evaluation and a smooth transition process?

13 Examples of Problems for the Consulting Project Algeria: Comparative Study topic: Comparative survey on ISO and TSO organization (a) The Algerian electricity and gas act requires the transition from a vertically integrated organization, where the coordination is strong, to an unbundled organization with a Transmission System Operator (TSO) which could be a same entity with the Independent System Operator (ISO). Actually, the option taken is the separation of the two functions. Key Points: Problems related to the coordination between the two functions The information flows Risk on the system reliability The advantages of having the two entities under the same roof (integrated option) Benchmarking (ISO organization, TSO organization, transition from TSO to ISO)

14 Long Run for natural monopolies