-40 is useful because of the trends it reveals. It is evident that since World War II the price of electricity relative to the competing fuels has put electricity in an increasingly improved competitive position because of the much greater rise in the fuels' prices (approximately four times tha in electricity price). C. The Outlook The new competition in the energy market is likely to intensify. New energy conversion devices still in the research and development (R&D) stage will add to the competitive arsenals of both the fuel industries and the electric utilities. The fuel industries, for example, may have available to them within the next few years a thermoelectric device for installation on the furnace that will power the blower or pump for the circulating system. Just as the total-energy promoter makes a virtue of isolation from a power system by pointing to the lack of dependence on the system's reliability, so the promoter in the future could point to the independence of the householder's heat from power interruptions. Further in the future is the possibility of the fuel cell, which would either generate a householder's electricity requirements parallel to a furnace or supply heat as well as power (depending upon the design of the fuel cell). This would expand the fuel industries' total energy concept to the individual home. -41 Still another development - already introduced in some areas is the centralized distribution of fuel oil. A large central tank in a development serves all the homes by separate lines with separate meters. The fuel oil industry thus eliminates the inconvenience of individual deliveries and, because deliveries can be made in bulk, reaps cost benefits that can be passed on to the consumer as a competitive edge. Intensified competition in recent years in The attrition of the monopoly position once enjoyed by the electric utilities is part of a broader development which has affected other regulated industries. The problems created by the rise of truck transport and the railroads' apparent inability to respond quickly and effectively to that competitive threat are well known. When the railroads finally decided to make a fight for traffic, they found it necessary to abandon their attachment to full-cost pricing and advocate to their regulators a form of incremental costing, a position bitterly con tested by the roads' competitors. 21/ Of particular interest in this 21/ See, e.g., Rules to Govern the Assembling and Present- - continued -42 connection is the fact that the Department of Justice recently felt com pelled, and was willing, to confess the error of its earlier position sup porting the Interstate Commerce Commission's use of fully-distributed 22/ costs as a ratemaking criterion.- In a most significant brief, the Department cited as "extremely important" the testimony of a group of economists which indicates that a policy allowing any carrier to establish a While the Supreme Court upheld the Commission, it did so primarily on the ground that Congress had directed that the Interstate Commerce Act be "so administered as to recognize and preserve the 221 23/ Exceptions to Recommended Report and Order in Behalf of Ingot Molds, Pa., to Steelton, Ky., 326 I.C.C. 77 (1965), Brief for Defendant, Louisville and Nashville R. R. v. -43 24/ the inherent advantages of each" competing mode of transportation. While "inherent advantage" was not explicitly tied to any particular cost determination, the choice was one of policy for Congress to make or, to the extent not made by it, for the administrative agency exercising its ratemaking discretion. It was not for the courts to decide. The soundness of the economic testimony was therefore not dispositive in the courts. It should be addressed to Congress, as is being done here. But commenting on the testimony the Court observed that the proposition that ratemaking on an incremental cost basis would maximize profits was "uncontrovertible" and nothing in its discussion should be interpreted as "a rejection of the basic economic points" (n. 16). Underlying the opinion was an evident solicitude that incremental cost ratemaking by the railroads would drive their competitors out of business (of which there is no likelihood here, see pages 89-90 below) and then be followed by higher rates (which is equally unrealistic here as Professor Baumol shows at pages 15-18 of his prepared statement). The actual decision is thus irrelevant here but the dicta corroborate the basic economic principles we urge. 24/ American Commercial Lines, Inc. v. Louisville & Nashville 91-056 O-69-62 U. S. -44 Perhaps the most publicized example of the problem of meeting the demands placed upon a company by competition and by its regulators is provided by the Federal Communications Commission's current investigation of the interstate rates being charged by the Bell System. That investigation stems in good part from the fact that during the course of an earlier investigation into the domestic telegraph industry the Commission requested Bell to provide it with a study distributing total interstate revenue requirements among each of seven broad categories of service. To meet this request, Bell prepared a "Seven-Way Cost Study" along rather traditional lines; the System's total historic interstate costs and investment were allocated by various methods to each of the service categories. The Commission's staff, concerned by the disparate rates of return apparently being earned on each of the services, felt a broader investigation to be in order. The staff was concerned that Bell's apparent failure to earn, on allocated investment in some of its services, a "return" equal to the systemwide rate of return meant (a) that competitors such as Western Union were being subjected to an unfair disadvantage; and (b) that message toll telephone (MTT) customers were being forced to subsidize Bell's ven tures in the private line communications field. 25/ The analogy to 251 See Report of the Telephone and Telegraph Committees of - continued |