IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v39y2011i3p1505-1513.html
   My bibliography  Save this article

Negotiated settlements with a cost of service backstop: The consequences for depreciation

Author

Listed:
  • Fellows, G. Kent

Abstract

The movement from traditional regulatory hearings to negotiated settlements represents both a departure from cost of service regulation and a relaxation of regulatory oversight. Under negotiation parties are able to renegotiate inclusions in their cost of service while simultaneously creating a profit margin for the regulated firm where none existed under the cost of service outcome of a traditional hearing. This paper constructs a model to illustrate the existence of positive gains to pipeline and shipper from the re-allocation of expenses through time in the regulated pipeline services market in Canada. Behaviour consistent with the model is observable in anecdotal and econometric evidence gathered from the library of the National Energy Board of Canada, responsible for pipeline toll regulation in Canada. Empirical investigation by Littlechild (2009a) into settlement procedures in the Florida electricity market reveals similar findings; however, this analysis represents the first attempt to model the behaviour formally. The econometric analysis uses new data collected and compiled specifically for this exercise.

Suggested Citation

  • Fellows, G. Kent, 2011. "Negotiated settlements with a cost of service backstop: The consequences for depreciation," Energy Policy, Elsevier, vol. 39(3), pages 1505-1513, March.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:3:p:1505-1513
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(10)00924-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    2. Rogerson, William P, 1992. "Optimal Depreciation Schedules for Regulated Utilities," Journal of Regulatory Economics, Springer, vol. 4(1), pages 5-33, March.
    3. Stephen Littlechild, 2008. "Some Alternative Approaches To Utility Regulation," Economic Affairs, Wiley Blackwell, vol. 28(3), pages 32-37, September.
    4. Doucet, Joseph & Littlechild, Stephen, 2009. "Negotiated settlements and the National Energy Board in Canada," Energy Policy, Elsevier, vol. 37(11), pages 4633-4644, November.
    5. William J. Baumol, 1971. "Optimal Depreciation Policy: Pricing the Products of Durable Assets," Bell Journal of Economics, The RAND Corporation, vol. 2(2), pages 638-656, Autumn.
    6. Doucet, J. & Littlechild, S., 2006. "Negotiated Settlements: The development of economic and legal thinking," Cambridge Working Papers in Economics 0622, Faculty of Economics, University of Cambridge.
    7. Littlechild, S C, 1970. "Marginal-cost Pricing with Joint Costs," Economic Journal, Royal Economic Society, vol. 80(318), pages 323-335, June.
    8. Harris, DeVerle P., 1993. "Mineral resource stocks and information," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 21, pages 1011-1076, Elsevier.
    9. Doucet, Joseph & Littlechild, Stephen, 2006. "Negotiated settlements: The development of legal and economic thinking," Utilities Policy, Elsevier, vol. 14(4), pages 266-277, December.
    10. Sweeney, James L., 1993. "Economic theory of depletable resources: An introduction," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 17, pages 759-854, Elsevier.
    11. Littlechild, Stephen, 2009. "The bird in hand: Stipulated settlements in the Florida electricity sector," Utilities Policy, Elsevier, vol. 17(3-4), pages 276-287, September.
    12. Burness, H Stuart & Patrick, Robert H, 1992. "Optimal Depreciation, Payments to Capital, and Natural Monopoly Regulation," Journal of Regulatory Economics, Springer, vol. 4(1), pages 35-50, March.
    13. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    14. Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-216, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrzej T. Szablewski, 2018. "Kolejny etap ewolucji koncepcji i praktyki regulacji ekonomicznej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 49-72.
    2. Kent Fellows, "undated". "Capital Input Decisions under Rate of Return Regulation," Working Papers 2014-37, Department of Economics, University of Calgary, revised 06 Nov 2014.
    3. G. Fellows, 2015. "The capital structure of a firm under rate of return regulation: durability and the yield curve," Journal of Regulatory Economics, Springer, vol. 47(3), pages 273-299, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephen Littlechild, 2011. "Regulation, customer protection and customer engagement," Working Papers EPRG 1119, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Andrzej T. Szablewski, 2018. "Kolejny etap ewolucji koncepcji i praktyki regulacji ekonomicznej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 49-72.
    3. Stephen Littlechild, 2016. "Contrasting Developments in UK Energy Regulation: Retail Policy and Consumer Engagement," Economic Affairs, Wiley Blackwell, vol. 36(2), pages 118-132, June.
    4. Bordignon, Stephen & Littlechild, Stephen, 2012. "The Hunter Valley access undertaking: Elements of a negotiated settlement," Transport Policy, Elsevier, vol. 24(C), pages 179-187.
    5. Littlechild, Stephen, 2012. "The process of negotiating settlements at FERC," Energy Policy, Elsevier, vol. 50(C), pages 174-191.
    6. Biggar, Darryl, 2022. "Seven outstanding issues in energy network regulation," Energy Economics, Elsevier, vol. 115(C).
    7. Littlechild, Stephen, 2018. "Regulation and the nature of competition," Journal of Air Transport Management, Elsevier, vol. 67(C), pages 211-223.
    8. Chakravorty, Shourjo, 2015. "A study of the negotiated-settlement practice in regulation: Some evidence from Florida," Utilities Policy, Elsevier, vol. 32(C), pages 12-18.
    9. Havyatt, David, 2022. "Toward consumer-centric energy network regulation: Australia's experience," Utilities Policy, Elsevier, vol. 78(C).
    10. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
    11. Heims, Eva M. & Lodge, Martin, 2018. "Customer engagement in UK water regulation: towards a collaborative regulatory state?," LSE Research Online Documents on Economics 87258, London School of Economics and Political Science, LSE Library.
    12. Eskesen, Anita, 2021. "A contract design perspective on balancing the goals of utility regulation," Utilities Policy, Elsevier, vol. 69(C).
    13. Stephen Littlechild, 2012. "Regulation and Customer Engagement," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    14. Littlechild, Stephen, 2009. "The bird in hand: Stipulated settlements in the Florida electricity sector," Utilities Policy, Elsevier, vol. 17(3-4), pages 276-287, September.
    15. Davies, Ryan J. & Hevert, Kathleen T., 2020. "Stay-out adjustments and multi-year regulatory rate plans," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 105-114.
    16. Bohne, Eberhard, 2011. "Conflicts between national regulatory cultures and EU energy regulations," Utilities Policy, Elsevier, vol. 19(4), pages 255-269.
    17. Littlechild, Stephen, 2018. "Economic regulation of privatised airports: Some lessons from UK experience," Transportation Research Part A: Policy and Practice, Elsevier, vol. 114(PA), pages 100-114.
    18. Littlechild, Stephen C. & Ponzano, Eduardo A., 2008. "Transmission expansion in Argentina 5: The regional electricity forum of Buenos Aires province," Energy Economics, Elsevier, vol. 30(4), pages 1491-1526, July.
    19. Schober, Dominik & Weber, Christoph, 2015. "Refinancing under yardstick regulation with investment cycles: The case of long-lived electricity network assets," ZEW Discussion Papers 15-065, ZEW - Leibniz Centre for European Economic Research.
    20. Dominik Schober, 2013. "Refinancing under Yardstick Regulation with Investment Cycles–The Case of Long-Lived Electricity Network Assets," EWL Working Papers 1321, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jun 2013.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:3:p:1505-1513. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.