Commentary by William M. Dugger

Abstract

Kenneth Nowotny has written a thoughtful overview of the economics of public utility regulation in the United States. His overview shows considerable insight into the major trends and the technical nuances of public utility regulation theory. He treats the different strands of thought even-handedly, describing developments in both the reactionary “Chicago School” and in the liberal circles of “Nader’s Raiders.” Although he emphasizes developments since 1950, his overview goes back to the 1920s. Pricing issues are explained carefully. He includes discussions of marginal cost pricing, peak-load pricing, and Ramsey pricing. (Ramsey pricing charges customers according to their demand elasticities in order to garner enough revenue to cover production costs.) He also discusses the characteristics of public utility companies and of public utility regulation. He emphasizes economic theory more than administrative practice or regulatory law. He includes a helpful bibliography.