ECOS3025 Lecture Notes - Lecture 6: Externality, Unintended Consequences

• School: University of Sydney
• Department: Economics
• Course: ECOS3025
• Professor: Vladimir Smirnov

Document Summary

Recall when to have economic regulation: objectives of regulation, control monopoly profits: based on cost; reasonable opportunity to earn a fair rate of return. Increase efficiency: i(cid:374)(cid:448)est(cid:373)e(cid:374)t (cid:373)ust (cid:271)e (cid:858)prude(cid:374)t(cid:859) (cid:894)produ(cid:272)tio(cid:374) effi(cid:272)ie(cid:374)(cid:272)y(cid:895); effi(cid:272)ie(cid:374)t pri(cid:272)e signals (consumption efficiency). Steps in economic regulation: revenue requirements, (cid:1874)(cid:1866)(cid:1873) (cid:1869)(cid:1873)(cid:1870)(cid:1865)(cid:1866)(cid:1872)=(cid:1868)(cid:1870)(cid:1853)(cid:1872)(cid:1866) (cid:1868)(cid:1866)(cid:1871)(cid:1871)+(cid:1853)(cid:1868)(cid:1872)(cid:1853)(cid:1864) (cid:1853)(cid:1870)(cid:1871, operating expenses: purchased labour, materials, services, rate base: value of investments accumulated depreciation (net investment in facilities, equipment. Capital charges: fair rate of return (ror) o(cid:374) utility(cid:859)s regulated assets, depre(cid:272)iatio(cid:374) of ppe, taxes. and other property to provide utility service): allowed rate of return to (cid:271)e ear(cid:374)ed o(cid:374) utility(cid:859)s rate (cid:271)ase. Tariff: a document, approved by the responsible regulatory agency, listing the terms and conditions under which utility services will be provided to customers within a particular class. Schedule of all rate elements / rates (individual prices) plus the provisions necessary for billing.