Economic, Political, and Social Influences on Electric Utility Regulation in the Georgia Public Service Commission
Kamerschen, David R., Reynolds, Jeff, The Journal of Social, Political, and Economic Studies
Regulation is a dynamic and complex issue that has sparked controversy recently and deserves a closer look. While this paper concentrates on regulation in one state (Georgia) and in one specific industry (electric utilities), we believe that it has application for other states and other regulated industries. We find that economic, political, and social factors affect state regulation. The economic variables affect private efficiency relations, the political variables. affect governmental power relations, and the social variables affect private equity or fairness relations. In our opinion, for the short-run at least, some kind of regulation is still necessary. However, it is instructive to consider some alternatives. In our view, the best current alternative is reorganized commission regulation coupled with partial or semi-deregulation rather than government ownership or complete deregulation.
Key Words: Georgia Public Service Commission, natural monopoly, subadditivity, pure discrimination, deregulation, privatization, electric utilities; economic, political and social influences.
In 1877, Munn vs. Illinois gave states the right to regulate price charges by firms whose economic power tempted them to exploit their customers. The court ruled that, "When private property becomes affected with a public interest, the owner must submit to such controls as might be established for the common good" (see e.g. Denning and Mead, 1990, p. 21). By 1914, more than half the states in the U.S. had public utility commissions controlling electric rates and services. By 1976, all states having investor-owned or private electric power companies had state regulation. Privately owned plants generate and sell a majority of the power in Georgia, and these are regulated by the Georgia Public Service Commission (GPSC).
The GPSC has been criticized and praised for its regulatory actions and policies. Several relevant questions have been asked about GPSC regulation in general and the electric utility industry in particular. Why are public interest and natural monopoly given as the primary justifications for GPSC regulation, and what are their rationales? What effects do economic, political and social variables have on the decision-making and regulatory procedures of the GPSC? What are the benefits and costs of the GPSC's regulation of the electric utility industry, and what are the alternatives? The most important issue to the consumer is whether the ratepayer residential, commercial, and industrial - can obtain equitable rates along with reasonable service. The most important issue to the utility is whether it can earn a reasonable rate of return by operating efficiently. And the most important issue to the GPSC is whether it can balance the economic, political and social factors so as to generate efficient and equitable prices and profits. The economic, political and social variables need to be examined and alternatives explored. The economic variables affect private efficiency relations, the political variables affect governmental power relations and the social variables affect private equity or fairness relations. With regard to all the questions, complexities, and dynamics of regulation, Gormley (1983, p. 27) sums it up admirably when he says, "The regulator needs the patience of Job, the wisdom of Solomon and the optimism of Sisyphus." While this paper concentrates on regulation in one state (Georgia) and in one specific industry (electric utilities), we believe that it has application for other states and other regulated industries.
Origins and Functions of the GPSC
The GPSC is one of the oldest commissions in the United States, created by the Act and Resolutions of the General Assembly of the State of Georgia in 1879 as the Railroad Commission of Georgia (see NARUC, 1989). The term of office was fixed at six years, which is still true today. In 1907, the number of commissioners, elected by the state, was increased from three to five. …