Director's Take

Mark A. Jamison

Profile | Email (jamisoma at ufl.edu)

Welcome to the PURC website, where you'll find information about our research and training programs. I invite you to search for PURC working papers and publications in our Research Papers Search engine, and visit our specialized courses page for examples of our recent training programs, as well as details about the next delivery of the PURC/World Bank International Training Program on Utility Regulation and Strategy. Finally, I welcome any suggestions or comments you may have about this column or about our website.

Coming soon: The FCC chairman’s set-top box app

By Mark A. Jamison, Ph.D.

RIP, America’s robust video market. FCC Chairman Tom Wheeler has a plan for you and he doesn’t intend to let you refuse it. Last week the FCC released a fact sheet on Chairman Wheeler’s new plan to rid the world’s most vibrant video marketplace of set-top boxes, those devices that almost all cable TV customers choose to lease each month. His plan? Force creation of an app and a standard app license that would take over the video marketplace. What could be more innovative than government-directed software and business contracts?

Tech for president!

By Mark A. Jamison, Ph.D.

My fellow Americans, when you vote for president of the United States this fall, I am asking you to write in me, the US Tech Industry. Why should you write in Tech? Frankly, no one in government is more popular than me with the American people. I am also more trusted than American politicians. Furthermore, my platforms are so loved worldwide that European politicians are openly jealous. To sum up, I have already made America great and my foundations are honest.

Adaptive regulation: Africa finds a third way on telecom regulation

By Mark A. Jamison, Ph.D.

What sector regulations are appropriate for a fast-changing telecommunications industry? The economist's answer is often deregulation: absent monopoly power, it is hard to justify regulatory control of a market in which customers are in a position to make their own choices. Introducing regulation opens the door for industry players to push for rules that hinder competition and for political actors to design regulation to benefit cronies and distort markets. But sometimes deregulation isn’t an option: laws may not grant regulators enough discretion and it may be difficult to build political coalitions to change those laws. What can be done in such situations? Ghana is providing an example with its use of “adaptive regulation,” an approach that allows the industry and the regulator to co-evolve in a customer-driven system.

How Clinton’s universal broadband push would be a drag on the economy

By Mark A. Jamison, Ph.D.

Hillary Clinton’s technology and innovation agenda promises to “finish the job of connecting every household in America to high-speed broadband.” How? Largely by taking money from taxpayers and funneling it to people who promise to expand broadband. In some universe, it might be possible to make the world a better place by taking money from businesses and consumers who were using it to produce wealth and value and putting that money into something that people are otherwise unwilling to pay for. But in the world in which we actually live, Clinton’s plan is likely to waste resources and make our economy worse for the experience.

Can the FCC be saved from its chairman?

By Mark A. Jamison, Ph.D.

Three cheers for Senator John Thune (R-SD) for providing leadership that the Federal Communications Commission (FCC) needs. Too bad that leadership isn’t coming from the agency’s chairman, Tom Wheeler. In a speech on the floor of the Senate on July 7, Sen. Thune, Chairman of the Senate Committee on Commerce, Science, and Transportation, called Chairman Wheeler to account for leadership failures at the FCC. Chairman Wheeler has given the senator a lot to talk about.

4 ways Clinton tech plan would destroy US tech leadership

By Mark A. Jamison, Ph.D.

It seems that Silicon Valley and pundits from the left and the right have found a lot to love in Hillary Clinton’s technology and innovation agenda. Maybe they should think again. News headlines have characterized the plan as a love letter to Silicon Valley or a Silicon Valley wish list. Indeed, the trade group The Software Alliance issued a press release embracing the candidate’s agenda. The left-leaning advocacy group Public Knowledge is excited for expanded taxpayer funding for Internet and more net neutrality. The Washington Post quoted Berin Szoka, president of the right-leaning Tech Freedom, as saying that Clinton “hit the ball out of the park about making broadband deployment easier,” a comment that the think tank repeated on its Facebook page. Despite this enthusiasm, there is much to worry about in this agenda as it provides a blueprint for diminishing US leadership in tech.

Five questions Congress should ask the FCC commissioners on July 12

By Mark A. Jamison, Ph.D.

The five commissioners of the FCC are once again being hauled before Congress to explain themselves. This time it will be to answer questions from the House Energy and Commerce Committee on July 12. The chairman of the FCC, Tom Wheeler, has been called to testify a number of times before Congress, in part because Members of Congress have expressed concern that transparency and integrity of decision making appear to have declined under his leadership, while overreach, partisanship, and politicization have expanded.

It’s time to move beyond net neutrality

By Mark A. Jamison, Ph.D.

Now that the DC Circuit Court of Appeals decided that it is okay to have economics-free regulations for the Internet, leadership from Congress may be the only way we can achieve an economics-grounded and technology-grounded policy for the Internet.

Keep calm and let platforms carry on

By Mark A. Jamison, Ph.D.

Certain European officials seem to be suffering from a disorder called platform anxiety — the fear that arises because US firms are the leaders in creating business platforms. As is often the case, these officials are self-medicating by imposing regulations on others. While this may be a fulfilling activity for the officials in question, though probably not for the firms being regulated, it does little to address the real problem: Governments are feeling left out of the platform economy.

Can Netflix save Europe’s film industry? The European Commission hopes so

By Mark A. Jamison, Ph.D.

You know an industry is having an impact when government officials seek to control it, or at least capture its value. This appears to be what the European Commission is doing as it seeks to force Netflix, Amazon, and Apple to carry and promote more European films — and to have these companies pay for the privilege of doing so.

Data dysfunction: Time to fact-check the set-top box arguments

By Mark A. Jamison, Ph.D.

In politics, data are used to market policy, not to make policy. That seems backwards to most of us: Shouldn’t information drive decisions, not the other way around? Not in the world of politics. And increasingly, not in the world of regulation by so-called expert agencies. The current case in point is the proliferation of bad math and falsehoods masquerading as facts in the context of the possible regulation of set-top boxes. These make for powerful political marketing, but lead to bad policy when taken as truth.

Five ways to cripple tech (and the US economy)

By Mark A. Jamison, Ph.D.

The tech sector does great things for the US economy. For example, IT made up 75 percent of US productivity growth from 1995 to 2002, and 44 percent from 2000 to 2006. In 2011, IT workers earned 75 percent more annually than non-tech workers. And, finally, tech made up 5.7 percent of the US workforce in 2014. Given these great contributions to citizens’ wellbeing, one would think tech companies and governments would be careful not to kill the proverbial goose that lays the golden egg. But that could be just what is going on. Here are five ways governments and industry are trying to cripple tech.

White House weighs in on set-top boxes — and starts a witch hunt in the process

By Mark A. Jamison, Ph.D.

Late last week, the White House urged the Federal Communications Commission (FCC) to take control of how cable television companies use set-top boxes, presumably for the purpose of promoting competition. In a coordinated release, the administration issued a YouTube video and three documents — an Executive Order; a Council of Economic Advisors issue brief; and a blog by the Chairman of the Council of Economic Advisers, Jason Furman, and Director of the National Economic Council and Assistant to the President for Economic Policy, Jeffrey Zients — all directed at increasing regulation and promoting free markets.

The cost of regulating special access: A 55 percent investment decrease

By Mark A. Jamison, Ph.D.

Often, an economist’s role in public policy is to explain obvious things that for some reason are being missed. This includes simple truths such as these: only a monopoly can have monopoly power, regulations should not outlive their purpose, and pushing prices below commercial levels generally decreases investment. These economic lessons could assist the Federal Communications Commission (FCC) in the “special access” proceeding, in which the agency is being lobbied by resellers to extend existing price-cap regulations from TDM-based services (on copper connections) to IP-based services (on fiber connections).

What are next steps for Congress on net neutrality?

By Mark A. Jamison, Ph.D.

Indications are that Congress is likely to take up net neutrality once the court rules on whether the FCC overstepped in its 2015 Open Internet Order. The intent at least on the Senate side is to have strong net neutrality provisions. The House seems less likely to take that position. Are there ways to have our cake and eat it too? Can we have dynamic industries and regulation? Yes, as long as the regulatory framework is consistent with a constantly improving tech ecosystem of networks, edge providers, customers, and others yet to be named.

Five ways to cripple the FCC

By Mark A. Jamison, Ph.D.

In recent years, the Federal Communications Commission (FCC) has written sweeping regulations based on little more than well-crafted narratives while ignoring the cornerstones of good regulation: independence, evidence and analysis. It has made the regulatory process an “economics-free zone,” writing regulations in the dark and ignoring warnings of unintended consequences. It has intervened in markets without any evidence of market failure or consumer harm. How is it that a major regulatory agency — one that once provided substantive advice to the rest of the world on how an independent agency should function — seems to have lost its way? It has had a lot of help. In case someone wants to destroy the credibility and effectiveness of an independent agency in the future, here are five ways to do it.

Seven steps to ensure you become over-regulated

By Mark A. Jamison, Ph.D.

Remember the good old days, when Silicon Valley was all about creating cool stuff, taking risks, and making people say, “Wow!”? Now it seems the headlines are much more focused on the valley’s encounters with government: The heads of Google and Facebook were called to Europe to face calls for increased regulation, the Federal Communications Commission (FCC) wants to regulate the Internet and set-top boxes, and European telcos are calling for app regulations that would hinder their US competitors. What happened? As I explore in this post, tech firms have satisfied almost every rule for ensuring undeserved government regulation. This is sad because many of these growing regulations are slowly cutting off the very oxygen that has made US tech great.

A dangerous tech policy narrative emerges: Decreasing choice to increase freedom

By Mark A. Jamison, Ph.D.

Have you ever read a blog or a proposal by a policy advocate and thought it was satire, only to later learn that the person was serious? I bet this is an increasingly common experience for those of you reading Internet proposals coming from the FCC, Bernie Sanders, and some academics advocating for tech regulation.

Wheeler channels Bernie to regulate set-top boxes

By Mark A. Jamison, Ph.D.

It is all too clear who is running the FCC these days, and it’s not Chairman Wheeler. In a January 27 op-ed in Re/code, Chairman Wheeler announced his intention to have the FCC begin regulating television set-top boxes — the devices that connect televisions to cable TV or satellite TV networks. The plan is to force cable and satellite providers to open up their boxes to other technology companies, allowing each customer “to use one for all of the video sources you use.”

Three things economists wish the FCC knew about broadband markets

By Mark A. Jamison, Ph.D.

A funny thing happens when economists get together: They discuss the real impacts of public policy. Wouldn’t it be nice if the Federal Communications Commission (FCC) participated in these discussions? In particular, wouldn’t it be nice if the FCC knew that: (1) Technology-based competition drives broadband progress and adoption more than regulation-driven competition does; (2) High market shares are a sign of market success, not market failure; and (3) The FCC’s universal service programs are expensive and largely ineffective.

Resolve to stop hurting the poor

By Mark A. Jamison, Ph.D.

Let’s resolve in 2016 to let tech serve the poor everywhere. It is unlikely that we could find anyone who thinks it is a good idea to stand in the way of tech serving the poor. Still, the proponents of recent tech policy proposals are, whether they intend to or not, doing just that.

How is this happening? In recent years, many people and countries have embraced net neutrality, a concept that has a liberating ring to it, but in reality is anything but. Net neutrality began as an ambiguity and has morphed into an illusion that, in the name of doing good, is hurting the most vulnerable among us.

Net neutrality is choking innovation

By Mark A. Jamison, Ph.D.

Maybe the FCC thinks the US has had enough tech innovation. If it does, then its decision to impose utility-style regulation on Internet Service Providers (ISPs) appears to be right on track; at least one ISP says the regulations are delaying new services.

What’s this about? Early in 2015, the FCC adopted Title II regulations for ISPs. In doing so the agency embraced a regulatory framework designed initially for railroads in the 1800s, which was then adapted about a century ago for monopoly utilities – which telephone companies once were. Exactly how the FCC would impose these regulations on the Internet has remained vague, but the agency’s plan includes:

  • A prohibition on ISP’s offering fast lanes (no turnpikes or HOV lanes);
  • Case-by-case restrictions on ISPs doing things that the FCC thinks might unreasonably interfere with customers’ access to content (this is in addition to an outright ban on blocking lawful content);
  • Restrictions on network management practices that have an underlying business purpose;
  • Prohibitions on unjust and unreasonable interconnection arrangements;
  • A promise that the FCC is keeping “a close eye on any tactics that could undermine” the FCC’s rules.

Innovation at the edge depends on innovation at the core

By Mark A. Jamison, Ph.D.

America’s high-tech industries are delivering some amazing innovations, but how long can they keep this up if networks are running 20th-century technology?

Governments have gone to war on Internet freedom

By Mark A. Jamison, Ph.D.

The Internet has been doing too good of a job promoting freedom, international cooperation, and the exchange of ideas. So much so that governments around the world are fighting back. That appears to be the bottom line of a recent survey by Freedom House. Its Freedom on the Net 2015, the fifth in its annual series on government policies and Internet freedom, found that Internet freedom is on the decline in most parts of the world. The survey scores governments on their practices for removing content from the Internet, arresting and intimidating people for what they put on the Internet, surveillance, and undermining encryption and anonymity. Countries are then classified as Free, Partly Free, or Not Free. Most of the 65 countries (representing 88% of the world’s Internet users) surveyed for the 2015 report experienced decreases in freedom since joining the survey.

Title II’s real-world impact on broadband investment

By Mark A. Jamison, Ph.D.

It is a fundamental truth in economics and finance that lower returns or higher risks decrease incentives to invest. Combining the two spells double trouble. The FCC delivered just such a double whammy with its Open Internet Order when it chose to place new, yet often unspecified restrictions on Internet Service Providers (ISPs). Almost as if on cue, investments in broadband dropped in the US.

Google case highlights why traditional competition law is a bad fit for tech

By Mark A. Jamison, Ph.D.

Competition regulators around the world are (slowly) coming to terms with the fact that traditional wisdom in antitrust doesn’t apply to the tech industry. The latest country to contend with this fact was Taiwan. The details are not yet available, but it appears that the country’s Fair Trade Commission decided late last month that Google benefits customers when it offers its own services to users of the company’s search engine. This is how it is with tech: Discrimination can be good, bigger can be better, undercutting rivals can make markets work better, and things move so fast that markets more often than not punish bad acts on their own.

On the verge of a new IT era, regulators are tightening the reins on innovation

By Mark A. Jamison, Ph.D.

We are on the cusp of a new era in information technology. While consumers and entrepreneurs are excited to explore the potential capabilities and applications that lie within it, regulators in the US and Europe are fighting back. Fueled by strong skepticism of technological progress, at least by established tech companies, these regulators could end up banishing western economies into the backwaters of the information age.

How and why to de-politicize the FCC

By Mark A. Jamison, Ph.D.

One of the worst things you can do to a regulatory agency is politicize it. Politicized agencies bend to the ever-changing winds of politics, which creates problems for industry and consumers alike. This straightforward lesson is one I have taught government agencies around the world. They seem to get it. Meanwhile, our very own FCC still has to make the small but crucial first step required to start the de-politicization process.

The right to be forgotten: There’s a market for that

By Mark A. Jamison, Ph.D.

In May of last year, the European Union’s highest court ruled that Google has an obligation to remove selected information on certain people (at least certain Europeans) from its search engine results. Some are cheering this as a newfound or expanded “right to be forgotten,” and one group has even written to the US Federal Trade Commission asking that it act in line with the EU court. While this case brings about a rapid emotional response in most people – I don’t know anyone who wouldn’t like to limit what others can dig up on them – it’s biggest benefit has been to reveal an unexplored new idea: that there is, in fact, a market for being forgotten.

Opinion: Nation’s Poor to the FCC: “We’re Way Ahead of You.”

By Mark A. Jamison, Ph.D.

Last week the FCC adopted a proposal that, according to the agency, takes “significant steps to modernize its Lifeline program.” Lifeline is a 30 year-old telecommunications subsidy program for low-income households. After 30 years, you would think that the program has made a demonstrable impact on making “phone service affordable for low-income Americans,” as the FCC put it. You would be wrong.

As I think most American’s would agree, the FCC is right for caring about the poor, but the agency’s plan doesn’t put that care into action.

Graphing broadband adoption around the world

By Mark A. Jamison, Ph.D.

Who doesn’t love statistics? I certainly do. Especially when they are presented in an interactive and highly visual way. One website that does a superb job of this is Gapminder.org, which lets you explore all sorts of data, including the state of broadband around the world. The Gapminder data shows us the strong positive relationship between broadband penetration and liberty.

Google favors its own content and that might just be a good thing

By Mark A. Jamison, Ph.D.

If you google “Google EU,” chances are your top search results are numerous articles on the European Union’s antitrust charges against Google. I suspect the ironies aren’t lost on Google: (1) Its service is so good that it is the first source of information for about 90% of search users in Europe; (2) It is so pervasive that users have verbed its name; (3) Such great success makes it a target for European antitrust regulators; and (4) It is in the business of providing bad news about itself. In case you haven’t been watching, after five years of investigation, the EU brought charges against Google for what the EU calls search bias. In a nutshell, the European regulators claim that Google gives systematic favorable treatment to its own comparison shopping service in its general search results.

Wanted: More entrepreneurs

By Mark A. Jamison, Ph.D.

The US needs more entrepreneurs. In fact, the world needs more entrepreneurs. So says a recent study out of Pepperdine University, which puts some numbers to what it costs the US and other countries when they don’t have the right balance of entrepreneurs and established companies. The study, authored by students Catherine Bampoky and Aolong Liu, along with professors Luisa Blanco and James Prieger (hereafter, BBLP), examines the “economic growth penalty” that a country pays when its entrepreneurship deviates from its optimal level. How could there be an optimal level of entrepreneurship? Isn’t more always better? Not according the study. While it is clear that having too few entrepreneurs can lead a country to see slow economic growth and lagging international competitiveness, BBLP explain that too much entrepreneurship – in the form of too many new businesses relative to established ones – can also negatively impact growth.

Limitless innovation? Only if the FCC gives permission

By Mark A. Jamison, Ph.D.

Innovation always surprises. It catches us off guard and does things we do not expect. The best innovations happen when entrepreneurial companies step outside their comfort zones, explore unchartered territories, or take a great leap forward in ways no one had anticipated. Apple did this. So did Google, Facebook, and YouTube, all in their own, unique way. So what happens when innovators are forced to think inside the box? Well, we’re about to find out.

How much profit is too much? Tech companies and the surprising truth about their returns

By Mark A. Jamison, Ph.D.

Do tech companies, like Google, Apple and Facebook, make too much money? Some people seem to think so. What these critics might fail to realize is that if these winners in the technology marketplace are treated as “too profitable,” then the next Apple or Google may never appear. Why do critics believe these companies are too profitable? The reasons vary. Professor Clemons of The Wharton School thinks that the profits of companies like Google demonstrate that such companies are monopolies, leading him to the conclusion that they should be subjected to antitrust investigations. Others argue that big tech companies cause income inequality by engaging in stock buybacks, charging exorbitant prices for minor technology upgrades, or exploiting their less-skilled workers and their customers. It is true that familiar tech firms make a lot of money, as do their owners and executives. Apple made headlines when its quarterly profits jumped 38% last year. Three of the most profitable companies in the world in 2014 were information technology companies (Apple, Samsung, and Microsoft). Forbes’ list of the 25 wealthiest people in the United States includes eight from the tech world (Bill Gates, Larry Ellison, Mark Zuckerberg, Larry Page, Sergey Brin, Jeff Bezos, Steve Ballmer, and Michael Dell). Of course, we know about these success stories because they are success stories. The failures tend to go unreported. But do the successful make too much money? The answer depends on whether you want there to be another Apple, Google, etc.

Applying Title II without embarrassment

By Mark A. Jamison, Ph.D.

Is there a way for the FCC to apply Title II regulations to the Internet without embarrassing itself? Yes, but it would require a change in direction. “Title II” is the section of the Communications Act that was intended to regulate monopoly telephone companies as public utilities. Its roots go far back in history, but an effective starting place for understanding Title II is an 1876 Supreme Court case, Munn v. Illinois. The case involved grain elevators that the court found were situated uniquely between a river harbor and railroad tracks, giving the elevators monopoly control over grain movements from farmers in certain Midwestern states to markets on the East coast. The elevators extracted economic rent to such an extent that they seriously hindered the agricultural economies in the affected areas.

The importance of regulatory humility

By Mark A. Jamison, Ph.D.

It’s hard to be humble. In fact, most of us fail at it systematically: 93% of drivers believe they have above-average driving abilities. 94% of professors believe they are above average relative to their peers. 75% of competitive chess players believe they are underrated even though the rating system is demonstrably accurate and chess players tend to know their ratings. 66% of people believe they have an above-average sense of humor. Curiously this overconfidence is negatively correlated with ability (that is, the lower our ability, the more optimistic we tend to be about our abilities) and positively correlated with news consumption (that is, the more news we consume, the more we overestimate how much we know). This illusion that we know more than we really do has frightening implications for regulators who seem to be asked to make ever more detailed assessments and decisions. As FTC Commissioner Maureen Ohlhausen – who will be addressing regulatory humility at an event at AEI tomorrow – recently wrote, government officials “should resist the urge to simplify, make every effort to tolerate complexity, and develop institutions that are robust in the face of complex and rapidly changing phenomena. Unfortunately, regulation too often is a procrustean bed for the regulated industry, due to the limits of regulators’ knowledge and foresight.” “Procrustean bed” is a reference to Greek mythology, in which Procrustes physically forced his guests to fit his bed by stretching those who were short and amputating limbs from those who were tall.

What Google Fiber is teaching us about vertical integration

By Mark A. Jamison, Ph.D.

Google is becoming a major investor in fiber optics and other networking technologies, and in doing so is demonstrating the value of vertical integration in information technology. Google’s most well-known fiber initiative is Google Fiber, which launched its first project in Kansas City in 2012 and, according to the company, recently completed 7000 miles of fiber investment in Kansas and Missouri. Google Fiber focuses on the consumer market and offers high connection speeds, integrated Wi-Fi, content recording and storage, and devices. Since the initial launch in 2012, Google Fiber has gone live in Austin and Provo, announced launches in four more metro areas encompassing 18 cities, and revealed that it is exploring expansions into Phoenix, Portland, Salt Lake City, San Antonio and San Jose.

Net neutrality: Déjà vu all over again

By Mark A. Jamison, Ph.D.

As the FCC prepares for its February vote on net neutrality, and Congress formulates its own plan of action, what can we anticipate? That depends on whether the net neutrality opponents or proponents win. The bottom line is that net neutrality opponents are against the government defining the boundaries of an industry, at least without substantial evidence that firms are harming customers. Conversely, proponents want government to define the industry by limiting what ISPs can offer to their customers. We have been down this road many times before in telecommunications. As I describe below, the US history of placing boundaries on what telecommunications can be includes the 1956 Consent Decree, the FCC’s three Computer Inquiries, the breakup of AT&T, efforts in Pennsylvania and other states to create wholesale-only telcos, and network unbundling. These attempts to create a regulatory-defined industry all unraveled. Their dynamics tell us what we can expect once the FCC and/or Congress act.

The FCC’s powers of taxation: A signal of bad governance

By Mark A. Jamison, Ph.D.

It used to be that when school officials increased spending on technology, it was because they had talked with the people who paid the bills, i.e. local taxpayers and local elected representatives. Prior to making any changes to the budget, these officials openly considered budget priorities, such as the need for books, building improvements, teachers, transportation, extracurricular activities and other concerns, and then reached a decision that balanced these diverse priorities. This is not the way it works anymore. Things changed in 1996 when Congress and then-President Clinton agreed that the Federal Communications Commission (FCC), the federal regulator of telecommunications and broadcasting, should also be in charge of subsidizing schools’ and libraries’ communications services, most notably the Internet. The FCC would do so by collecting money from telecommunications customers and giving it to schools and libraries.

In praise of gatekeepers: The growth of apps and decline of the web

By Mark A. Jamison, Ph.D.

The recent White House announcement on net neutrality offers an interesting paradox. On the one hand, the president believes that the currently unregulated Internet “(m)ore than any other invention of our time…has unlocked possibilities we could just barely imagine a generation ago.” These innovations include “digital devices, apps, and platforms that fuel growth and expand opportunity.” On the other hand, the president is adamant that “there should be no gatekeepers between you and your favorite online sites and services.” He can’t have it both ways. Aside from the fact that the Internet has never been neutral – e.g., larger content providers are able to afford transport and delivery services that their smaller rivals cannot – evidence is mounting that customers prefer service with gatekeepers and that gatekeepers are a primary source of innovation. The White House’s disparaged gatekeepers are Internet Service Providers (ISPs), those broadband providers who some believe seek to limit the value of their services by restricting what customers can do on the web.

Perhaps we could learn a broadband policy lesson from the Aussies

By Mark A. Jamison, Ph.D.

Having embarked in 2008 on a $40+ billion project to build fiber to nearly every home, Australia had the good sense to do a cost benefit analysis to see whether this effort was worth it. Admittedly, the analysis was a bit late – it began in 2013 – but it found that citizens would have been better off if the government had done nothing.

Is Florida Spending Too Little on Energy Efficiency?

By Mark A. Jamison, Ph.D.

The essence of getting the most bang for your buck is to put fewer dollars into areas where benefits at the margin are lower and more dollars into areas that are just the opposite. That does not mean that you put more dollars into areas where total returns are highest because total and margin are different concepts. That basic idea is important when considering how Florida is doing with its energy efficiency programs.

The 2012 Florida legislature directed the Florida Public Service Commission (FPSC) to work with the Florida Department of Agriculture and Consumer Services to sponsor a study on whether Florida’s energy efficiency laws (known as FEECA) remain in the public interest. The FPSC, following its established procurement practices, chose a research team consisting of the Public Utility Research Center and the Program for Research Efficient Communities of the University of Florida, and the National Regulatory Research Institute.

The study team concluded that Florida’s laws and policies appear to serve the state’s citizens and energy customers well, although some data limitations kept the team from doing as thorough an investigation as it would have liked. The team found that the cost effectiveness of FEECA programs compare well with the cost effectiveness of comparable programs in other states. Favorable benefit-cost ratios indicate that Floridians are getting a good return on their energy efficiency dollars.

But it is easy to misinterpret the beneficial ratios and conclude that Florida should be spending more. By way of analogy, think about someone who has adopted a healthy diet, eating nutritious foods in just the right amounts. This person’s benefit-per-calorie ratio for eating would be quite high. Should this person consume even more calories? Absolutely not! Each additional calorie consumed would make the person worse off and decrease the benefit-per-calorie ratio. The additional calories would actually make the person less healthy!

Similarly, a favorable benefit-cost ratio for FEECA programs that compares well with other states suggests that Floridians are getting good returns on their investments in energy efficiency. We don’t know if improvements could be made at the margin without additional studies.

To illustrate, if a utility is now spending $10 million on energy efficiency (recovered in bills), with customers obtaining $15 million in benefits, customers are receiving a net benefit of $5 million. If the utility spent and recovered $11 million instead, and total benefits increased to $15.5, the additional $1million outlay would have additional benefits that were half the additional costs. That is not a bargain for customers, even if the benefit cost “ratio” is still greater than one!

How much should Florida spend on energy efficiency? Even though that cannot be known without sophisticated studies, it is important to keep in mind that the goal is the highest benefit cost ratio we can obtain, given customers’ opportunity costs. A high ratio is not a signal to do more. A more appropriate interpretation is that we may be close to spending the right amount.

Ex Ante Regulation of Google?

By Mark A. Jamison, Ph.D.

Recent calls for ex ante regulation of Google are reminiscent of other calls for regulation of IT companies. Remember the calls to treat Windows like a public utility, or iTunes as an essential facility? These were all misguided because they misconstrued the basics of the proposed regulations. The calls for regulation then and now also contain an unstated premise that rules designed for truly monopoly industries with public franchises and stable, long-lived technologies could be successfully applied to companies whose technologies change daily and whose customers readily move on when something better comes along.

Advocates of ex ante regulation of Google generally frame Google as a public utility, a common carrier, or a holder of an essential facility. Google fits none of these.

A public utility is a firm that is given a public franchise to hold a 100% market share for a service that is essential to a modern economy. Local electricity, water, and natural gas providers are typical utilities. Google isn’t like them. There is no public franchise for providing general search. Most estimates find that Google has about a 65% market share in general search in the U.S., and a much smaller market share in overall search. And while Google is important, it is not an essential gateway of commerce, as evidenced by how quickly customers switched to Yahoo! when Google had a software glitch a few years ago.

A common carrier is a firm, such as a telecommunications provider or railroad that transports items on someone’s behalf. Regulations for common carriers come from the English common law public calling concept that emerged centuries ago when certain trades that were essential to the functioning of local economies were in short supply so that tradesmen could exploit customers with unique circumstances. Google does not fit the basic premises that make a firm a common carrier. Google does not transport information on a customer’s behalf. Google finds information and provides advertising, but telecom companies provide the transport. Also, general search and advertising are not in short supply, and Google’s pricing approach does not permit exploitation of unique circumstances.

A firm falls under the essential facilities doctrine if the firm is a monopolist or near monopolist in the final goods market, controls an input that rivals need to be able to compete in that market, and denies rivals access to the critical input. Google fits none of these criteria. Google is far from being a monopoly in the relevant retail markets, such as operating systems (Android vs. Apple OS), calendars (Google Calendar vs. Windows Live), and video displays (YouTube vs. Vimeo). And Google does not exclude rivals from advertising or from being included in general search. Even though Google clearly does not fit these categories of regulation, proponents of regulation remain, claiming vaguely that oversight would benefit competition. This is incorrect. Regulation of Google would likely diminish, if not kill the innovations, investment, and expansion of output that competition is supposed to encourage.

Read my full paper.

Make Better Mistakes

By Mark A. Jamison

It was clear from the nervous voices that the discussion had found a tension point. The small group of consultants, academics, energy companies, and a single utility regulator – all attending a large conference on the new energy economy – had been assigned by the conference organizer to discuss barriers to increased use of intermittent renewable energy, energy storage utilities, electric cars, and the like. I was in this group.

Our host country had been a pioneer in electricity reforms, having broken up and privatized its state-owned electricity monopoly in the 1980s. However, it appeared to our small group that the country’s vertically disaggregated electricity system wasn’t up to the challenge of a creating new energy economy. We had no answers: We didn’t know what the right structure should be, which companies could or should reform their cultures and business models, which laws should be repealed, which new laws should be adopted, etc. All we knew for sure is that no one in the group was safe: Each of our roles in the current energy system was at risk. As one might expect, we quickly discovered that talking about whether customers would recharge their cars at home or at work was less unsettling, so we moved on to that topic.

Ignoring a problem doesn’t solve it. The electricity sector, its customers, its suppliers, and its regulators are at a complex crossroad. We generally accept that increased use of renewable energy sources, more efficient use of power, improved grid management, and new uses for and new ways of pricing electricity are imminent. We could be wrong. Even if we aren’t wrong, we don’t know the best way to effect these changes, nor can we describe what the changes should look like.

How do we resolve this complexity and uncertainty? We don’t. As economics writer Tim Harford explains in his TED talk on the dangers of thinking we have the answer (which he refers to as the God complex), we have to start making better mistakes.

Most of us are not good at this because it means admitting our own incompetence. Economists and engineers like developing deterministic solutions and then moving on. Lawyers like writing laws and finding legal conclusions. Voters cast their ballots for politicians who make promises about the future and who vow to fight the bad guys, namely the other political party. Our desires to protect our professional reputations drive us to believe we have answers even when none exist.

Some traditional regulatory practices work against us when the future is uncertain and complex. Several jurisdictions have laws that require utilities to provide energy at least cost. What is least cost in a complex environment? Some costs, such as risk and foreclosed options, cannot be readily quantified. Sometimes a company incurs costs on behalf of others, perhaps decreasing system costs, but making the company’s service more costly. The ultimate effects of utility investment decisions are unknowable for years, making fact-based judgment difficult at best.

Finding the future is a trial and error process, so costs of errors are necessary for finding the future. How can regulators assess whether the learning has been efficient? And how should the regulator value the spillover benefits of errors when other utilities, regulators, customers, and others learn? Our normal view of prudency, and the way regulatory and utility work is scrutinized in the media and in the political arena encourages people to prefer errors of omission rather than errors of commission, because the former are harder for others to see.

Sometimes regulatory laws restrict business models, for example, by precluding companies from vertically integrating. This was the situation in the country hosting the conference, where some companies were refusing to introduce new energy services because they were uncertain whether the new services should be classified as providing energy, distributing energy, marketing energy, or something else. That classification would determine who could provide the services.

What can we do? We should view our next step as a next step and nothing more. We should encourage energy companies, customers, and regulators to experiment without risk of reprisal for errors as long as experiments are openly discussed, openly analyzed, and openly discarded when they fail to be part of the next step.

Most of all, we should embrace the notion that no one has the answer. As Mr. Harford said, “I see the God complex around me all the time in my fellow economists. I see it in our business leaders. I see it in the politicians we vote for — people who, in the face of an incredibly complicated world, are nevertheless absolutely convinced that they understand the way that the world works.”

Being Unsuccessful in Energy and Telecommunications

By Mark A. Jamison

What makes some people spectacularly unsuccessful? In “Why Smart Executives Fail,” Finkelstein and Roth analyze why former high-flying companies like Enron, WorldCom, and Tyco failed and found seven habits that the senior executives had in common: (If you don’t have time for the book, Eric Jackson provides an excellent summary in Forbes.)

  1. They see themselves and their companies as dominating their environment
  2. They blur personal and company interests
  3. They think they have all the answers
  4. They eliminate anyone who doesn’t completely follow them
  5. They are more obsessed with image than with results
  6. They underestimate difficulties
  7. They fail to let go of the things that worked in the past, but that now hold them back

It is easy for us with 20-20 hindsight to see the folly of these habits, especially when we are looking at others. What could happen if we looked for these behaviors in utilities and regulation today?

We might become more aware of our limitations. Sometimes regulators and policymakers see themselves as the ones who set direction for energy or telecommunications. However, a quick review of history finds fatal mistakes were made when governments followed their own visions, ignoring the forces of technology, economics, and customer demand. Utilities sometimes see themselves as the providers of service rather than as a part of a broader system with evolving boundaries and players.

We might also listen to outside voices more often. When Shell Oil experienced political and environmental disasters several years ago, its management engaged in an extended campaign of listening to the company’s harshest critics. This helped Shell recognize that its world had changed and that the company needed to adapt if it wanted to be successful in the future. Certainly there are many critics of utilities and regulation, and they speak often, but how well do we hear the song beneath the words that our critics share? It is tempting for each of us – academics, consultants, utilities, regulators, etc. – to trust our own understanding, and in doing so, miss some important themes that are cutting across all of our work.

We might spend more time thinking carefully about real impacts and less time on impressions. Sometimes enrollment rates in programs like Lifeline are used to define success while consumer impacts go unnoticed. Dollars invested in broadband or green energy are also used to measure success while economic and environmental value created or destroyed is ignored.

I have touched only on a few of the habits, and I am sure that I have missed many blind spots, especially my own.

What are we to do? I was impressed by a consumer representative at the recent Critical Consumer Issues Forum in St. Louis who asked whether the regulatory and infrastructure initiatives that are coming to a head in energy at this time make sense when taken together. This big picture view of the preponderance of initiatives and how they interact is too rare. His point was supported by my own informal survey of utility executives, that found that most of their attention is devoted to complying with regulations at the expense of business improvement and strategic planning.

I have also been impressed with regulators and utilities’ employees who have made a point to listen to their critics and process what they hear. The Australian Competition and Consumer Commission convenes an annual conference that features outsiders who are invited to assess what they see happening in the country. A regulator in the U.S. organized an annual dialogue with executives, policymakers, and researchers to initiate discussions about which her state should be thinking for the future. A utility executive in the U.S. invited leading thinkers from many walks of life to challenge how his company thought about itself and its future.

Above all, each of us should think carefully about these 7 habits and watch for warning signs in ourselves and in our organizations.

Hurricanes and Electric Utilities: Lessons from Florida

By Mark A. Jamison

What's the best way to divert hurricanes and avoid damage to electric infrastructure? Maybe it's being ready to learn from the experience.

That is one way of interpreting Florida's experience. In the aftermath of the 2004-2005 hurricane season, when eight named storms caused a total of $15.5 million in customer losses from power outages, Florida embarked on a comprehensive reform preparing electric utilities for hurricanes. This effort included coordinated research through PURC on electric infrastructure and storm damage.

This research – funded by Florida's utilities and done in collaboration with them – included an in-depth look at the economics of hardening the state's electric system. A computer model developed for that purpose helps analyze the costs and benefits of undergrounding and other forms of hardening at a micro level. The research also included the deployment of an extensive network of weather monitoring devices to gather storm data and a companion software system for mapping the weather data to infrastructure damage.

But now that we in Florida are ready to test our model against real storm damage, no hurricanes have hit the state. Maybe our preparedness hasn't caused hurricanes to go elsewhere these past six years, but we are better prepared now for extreme storm events than we were in 2004.

Florida's experiences may provide other states with an approach to better prepare for extreme weather events. The work done in Florida was the foundation for a study in Texas of the economics of hardening electric infrastructure following hurricanes there a few years ago. States in the northeast are beginning to review the impacts of Hurricane Irene. As they move forward with their investigations and plans, we at PURC look forward to collaborating with them and sharing Florida's strategies to minimize losses from extreme weather.

What exactly can other states gain from the Florida experience? One key lesson is to have a coordinated plan for dealing with storms and their aftermaths, and to have practice runs of the plan. This isn't something that PURC has been involved in, and I am sure that at least some other states in the hurricane belt have similar systems in place. However, states without such plans would benefit from talking with Florida's Division of Emergency Management.

Another key lesson is to develop a system of shared knowledge and shared research. This has been PURC's role in Florida. At the request of the Florida Public Service Commission, the electric utilities and PURC conducted workshops on the effects of the hurricanes, identified areas where research could improve utilities' abilities to serve their customers when hurricanes hit, and worked together to address the research needs. A more comprehensive description of this work is available in The Electricity Journal article "Florida's Storm Hardening Effort: A New Paradigm for State Utility Regulators" by PURC researchers Lynne Holt and Ted Kury.

While it is a standing joke in Florida that the 50+ weather monitoring stations that WeatherFlow and our collaborative research team installed after 2005 have kept hurricanes away, the real service to the state's utilities and customers is that both are better positioned to manage hurricane damage in the future and to continue to improve as we learn from experiences.

A Leadership Deficit

By Mark A. Jamison and Araceli Castañeda

This moment in history is a good opportunity to learn about leadership. We see the U.S. debt ceiling deadline looming large and our federal government losing its AAA credit rating, even if a debt deal is reached. We also see the people who are in a position to do something faltering: Three perspectives seem to prevail. First, there are the political actors who see today's predicament as a phase in a long-running competition for public approval and political power. They play to the media and the voting public, demonize rivals, and exalt themselves, seeking advantage for the next election.

Second, there are those who view this moment as resulting from recent elections that authorized them to reign in government spending; they feel a need to meet their supporters' expectations and stand firm against the bad guys.

Finally, there are those who perceive the situation as a train wreck; they attempt to distance themselves from the fray, from the adolescents, and frame the state of affairs as someone else's fault.

These three views shape much of the activity in Washington, D.C., at least as it is portrayed in the media. This media view is to be expected. After all, powerful drama with good guys, bad guys, and looming disasters stimulates newspapers sales, newscast viewership, and Internet page views.

However, these perspectives seem to miss the uncomfortable feeling that is settling in for this country: Most of us in the U.S. have never lived in a country that was not the world's leading economy, not the world's leading financial center, and not a world leader in good government. Now we do.

Public debt as a percent of our income (GNP) now stands at 73%. That is double what it was at the start of the current recession. Thumbing its nose at historical patterns, our sputtering economy is now into its fourth year of the doldrums, despite multiple attempts at fiscal and monetary stimulus. Wall Street is now a four-letter word in much of the public discourse, not the respected center of international finance that it became after the Great Depression. U.S. government officials are being lectured about financial responsibility by officials from countries that we considered developing economies just a few years ago. Now the media mentions the U.S. in the same breath as it does Europe's most anemic economies.

Our natural response to this predicament is to view it as someone else's fault: We blame Democrats, Republicans, greedy businesses, bureaucrats, Bush, etc. We don't see ourselves in the problem. We are there.

We are there in part because we are looking for solutions in the wrong places: We are looking for a traditional type of leader, one who would provide direction, solve problems, and fix the bad guys. This approach, however, does not work because this is new territory, and there are no easy answers. Making matters worse, we are divided in what we want. Some voters want to live in the world's strongest economy, financial center, etc. again. Others are more comfortable with a United States that does not stand out on the world stage. Some voters don't bother themselves with such concerns, preferring to focus on culture wars, nanny state, wealth envy, or social and environmental justice. As a result, many of us become upset if someone tries to lead us on a particular course, as President Obama has discovered. Maybe the leadership deficit is in us.

We are also in the midst of this dilemma because we do not like what someone practicing leadership has to offer. Leadership in moments like this should stir, steer, inspire, and disappoint. Stirring keeps our problems, conflicts, and contradictions before us so that we see them clearly and debate them with our friends and colleagues. Steering moves us away from past loyalties and supposed truths that in fact hold us back, and moves us onto new paths of our own making. Inspiration is needed to keep us in the game: It gives us hope that we can overcome the current situation. It also carries us through the disappointment of coming to the realization that some of our "truths" may be false, and some of our aspirations may be fantasies.

Outdated or Wise? Innovative or Naive?

By Mark A. Jamison and Araceli Castañeda

A knowing chuckle spread across the room of utility executives and senior managers. A show of hands revealed that one fourth will retire within five years and about half in 10 years. That magnitude of loss was true from the company managers all the way down to the craft workers.

Everyone agreed that this was a problem. Was it a technical problem that could be solved through changing hiring practices and implementing training programs? Or was it an adaptive challenge where employees and the company would have to make hard decisions about what they valued most?

Aging workforce is a well-known problem for utilities, as it is for other industries. When utilities expanded in the 1960s and 1970s, they hired a large number of people that were just entering the workforce and these employees, many of whom have now worked for the same company for 30 years, are nearing retirement. Some people worry that when these employees go, a lot of knowledge, wisdom, and loyalty goes with them. Others are happy to see the older generation go.

Who is right, those who worry or those who can't wait? Probably both. Aging workforce presents both a threat and an opportunity for companies facing a changing economic and regulatory climate. The key questions companies have to answer include:

  • What from the past does the company need to retain to be successful in the future?
  • What from the past holds the company back from future successes?
  • What losses are the older generation experiencing that may cause them to sabotage knowledge transfer?
  • What beliefs and attitudes do the new generation possess that may cause them to reject the most important lessons from the past?

Some of the knowledge to be kept is obvious: Where are problems likely to occur in the transmission lines? What is the best way to communicate with emergency management officials when a major storm hits? However, some traditions that pass for knowledge may hold a company back. Rivalry between organizational silos can keep a company from adapting as circumstances change. Memories of failed expansions into new lines of business can make a company overly conservative. And predominance of close relationships with like companies can reinforce conventional wisdom.

How can a company develop a culture that can determine what from the past to remember and what is best left behind? One company – not an electric utility – developed interdisciplinary experiment teams, whose mission was to identify and carry out trials that would test conventional wisdom and new ideas. Another company organized its troublemakers to openly debate the questions others wanted to avoid and expose the company to threats that others pretended didn't exist. In a third company, the CEO allowed disgruntled employees to vent at him publically, thus establishing a culture that celebrates the discussion of elephants in the room.

How can a company address the losses, beliefs, and attitudes that separate generations? Some companies establish programs that honor the roles of aging employees and help them establish new roles outside the company, maybe within the community or in an organization that celebrates the company's past. Other companies hire pools of talented, young employees that rotate through the company during their first few years of employment. Yet others develop leadership academies that expose younger employees to all aspects of the company and to senior employees, and have the academy participants work in interdisciplinary teams on experiments of their choosing that test new ways for the company.

The wrong approach to addressing the aging workforce issue is to assign it to HR, treating it as a personnel issue. The adaptive challenges of aging workforce cut across all dimensions of an organization and involve everyone.

What happens if a company ignores the adaptive challenges of the aging workforce? The 50 percent or so of employees who are going to retire will do so, and the company that is left behind will be a consequence of attempts to put new wine in old wineskins: It won't be the company created by the retired generation because they will be gone. It won't be a company formulated by the new generation because it is simply being fit into the old generation's structure. Nor will it be a company jointly developed by the best that the old generation and the new generation have to offer because they never worked through what to keep from the past and what to create anew. At best, the company will be an accident of history. At worst, it will belong to somebody else.


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