Research Update

Summer 2008

Greetings! We bring you research news from the Public Utility Research Center (PURC) at the University of Florida. Our electronic newsletter is designed to keep utility regulators, policymakers, and infrastructure managers informed of our research activities. We invite you to join our mailing list and receive our bulletins by email.


(When) to Build or Not to Build?: The Role of Uncertainty in Nuclear Power Expansion

With concerns over global climate change, U.S. policymakers are exploring ways to reduce domestic dependence on coal and natural gas. No new nuclear plants have been ordered since 1978. However, federal and state policies and legislation have attempted to reduce risks to nuclear plant developers or re-allocate them to customers and to improve expected returns from investments in nuclear energy capacity. Past regulatory decisions and court decisions also have implications for cost recovery. Investments in nuclear power plants are irreversible and involve uncertainties during both construction and commercial operation. Uncertainties confronted by developers of merchant plants and price-regulated plants differ due to the regulatory and market paradigm in which these plants operate.

The effectiveness of current federal and state policies will depend on the developers' perceptions of how risks associated with uncertainties during construction (including those uncertainties surrounding changing governmental regulations) affect construction costs, how risks linked to revenue and operating uncertainties during a plant's commercial operation affect the timing and potential for cost recovery, and ultimately how these risks affect the decision to build nuclear plants. This paper concludes with several observations about strategies states may consider undertaking to mitigate investment risk. Read the paper, "(When) to Build or Not to Build?: The Role of Uncertainty in Nuclear Power Expansion". View more of Dr. Lynne Holt's research.


Leadership and the Independent Regulator

Being a utility regulator has perils because the independence of the regulator necessarily removes power from politicians, operators, consumers, and others. Furthermore, regulators are sometimes scapegoats for unpopular policies and unavoidably become involved in shaping the policies that they are supposed to implement. As a result of such frictions, regulators are sometimes removed from office or marginalized in some way. How can regulators not only survive in such an environment, but also thrive?

A leadership concept called adaptive leadership provides answers. The first step is to distinguish between technical and adaptive problems. Technical problems are ones where the problem is well understood and can be tasked to subject matter experts to develop potential solutions. Adaptive problems are those where there is considerable conflict over whether there is a problem and what might constitute an acceptable solution. One important skill for providing adaptive leadership is the ability to get on the balcony to see what is really happening among stakeholders. Once this perspective is obtained, then the regulator can engage stakeholders in an adaptive process in which people make necessary changes to traditions and expectations, while hanging on to the things that are truly important. Regulators can do this by bringing attention to problems that people want to ignore because they involve difficult trade-offs, by providing certainty and stability when tensions become too high for work to be done, and by keeping attention focused on the work and the issues. Read the paper, "Leadership and the Independent Regulator".


Water Utility Benchmarking for Managerial and Policy Decisions: Lessons from Developing Countries

Those responsible for utility operations can only manage what they measure, so having information on productivity trends and relative performance enables utility managers to direct attention to shortfalls. Similarly, policymakers require quantitative analyses in order to identify utilities with strong and weak performance. A recent Inter-American Development Bank (IDB) study reports that investments of $40 billion for water assets are needed to meet the United Nation's Millennium Development Goals; wastewater treatment would significantly raise that funding requirement.

Expecting infrastructure investment to grow in Central America, the IDB funded a PURC study on benchmarking water utilities in the region. The aim of IDB was to gauge the impact of loans on network expansion (coverage) and on service quality. This paper reviews lessons identified by participants in the PURC/IDB workshop at the conclusion of the project. Participants described factors having an impact on data quality, data collection, and benchmarking methodologies. They also examined possible policy and regulatory implications of performance rankings. In addition, lessons from academic research underscored the need for sensitivity tests before utilizing "scores" or rankings for setting prices or rewarding managers. Read the paper, "Water Utility Benchmarking for Managerial and Policy Decisions: Lessons from Developing Countries".


More Than a Lifeline: Low-Income Households' Telecommunications Preferences

Are programs to help low-income households afford telephone service working? Maybe not, according to this recent PURC study. In Florida, low-income households can receive up to a $13.50 discount on their monthly local phone bills through a program called Lifeline. Florida's Lifeline program is part of a larger, national program created by the Federal Communications Commission in the belief that landline local telephone service is essential for low-income households and that a price discount was needed to make the service affordable.

PURC conducted three surveys of Floridians to see if these initial assumptions are true today. The surveys found evidence that low-income households are quickly cutting the chord and adopting cellular phones, especially prepaid phones. In fact, they are doing this at a faster rate than are higher-income households. Furthermore, it is unclear that monthly bills are an important deterrent to subscribing to traditional landline service. Survey respondents cited frequency of moving as a primary factor for preferring cellular phones over landline phones. And only a few of the low-income households who qualify for the Lifeline discount actually signed up, even if they subscribed to a landline phone. Read the paper, "More Than a Lifeline: Low-Income Households' Telecommunications Preferences".


Emissions Trading

Would emissions trading be an efficient way of implementing emissions controls for electric utilities? If so, how could it be done? This paper explores how emissions trading has been done for other environmental concerns in the United States, such as NOx and SO2 pollutants, and explains the pros and cons of the various policy options.

While not specifically addressing climate change policies, this paper provides timely and clear explanations of the meaning of emissions trading, cap-and-trade, offset trading, and emission rate trading. The paper also describes the cost savings that have been gained in the United States with emissions trading relative to the traditional command-and-control approach to environmental regulations. The paper also explains why the country has fallen short of achieving all the possible cost savings available. The paper begins with an explanation of terms and context, explains various trading mechanisms,and describes the elements of the different systems and how firms respond to the incentives established through the trading mechanism. Read the paper, "Emissions Trading".


OOCUR as a Network of Regulatory Agencies

Between 1990 and 2005, more than 200 regulatory commissions were created around the world to regulate private and state-owned infrastructure firms. Regional regulatory networks are comprised of representatives from national regulatory bodies who have agreed to form an association or organization that facilitates collaborative activities. Since 1990, at least 17 regional associations of regulators have been established. These associations provide a variety of products: data for benchmarking, handbooks on regulatory best-practice, studies (including lessons regarding impacts of different policies), capacity-building for professional staff, materials for educating stakeholders, and sponsored meetings.

The Organization of Caribbean Utility Regulators (OOCUR) serves as a good case study of how such a network shares data and best practice techniques, develops studies, provides training, distributes regulatory materials, and organizes meetings. OOCUR, established in 2002 with the support of USAID, illustrates how a cross-country collaboration among national regulatory commissions can strengthen agencies that provide oversight, establish investment targets, and/or set prices and quality standards. This paper concludes with questions to be considered by regional regulatory associations. Read the paper, "OOCUR as a Network of Regulatory Agencies".


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