Utilities are those services that are very essential to the members of the public of which they can not do without. This implies that such services are usually required in bulk in the market as the demand for them is high. Because of these factors, the govern saw the need to set and regulate their prices. One of the objectives of setting utility prices is to ensure that there is no exploitation of the consumers as the the utilities usually are basic services that are essential for everyone.
Letting provider operate without regulating could result to monopoly which is associated with high price rates resulting to the provider making numerous profits at the expense off the consumers. Utility prices are also set to ensure that there is fairness for all the stakeholders (providers and the customers). This is because the prices are set at rates that ensure that the providers get a fair return on the money they used to invest while the consumers buy the services at prices that are not exploitative to them. Setting utility prices also creates opportunities for competition to exist.
This is fair as it enables the consumers to enjoy high quality services provided by competing companies as they seek to increase their competitive advantage within the market. Competition also results to the prices being reasonable and attractive. Setting utility prices which encourages competition increases the growth in economy as it enables more industries to be established hence creating more job opportunities and developing the infrastructure of the country as some of the utilities such as telecommunication and transport utilities such as railroads are infrastructures which promote economical growth.
c) Describe and discuss the various reasons for why rates should vary with time. Give examples of time variant rates for each of the utility industries. With regards to each set of arguments, clearly identify and discuss the economic efficiency and fairness concerns. Price rates should vary with time. This is because the cost of production of different utilities is not constant and keeps changing depending on the price of the raw materials being used in the production and supplying of the the utility.
Maintaining the rates constant may not be fair to both the providers and the customers depending on the times. For example when prices of raw materials decrease then the cost of production consequently reduces hence maintaining the prices constant imp[lies that the providers will making huge profits at the expense of the consumers. There also are times when the prices of some of the raw materials used in the production of the utilities increase causing the cost of production to shoot up.
Retaining the rates would not be fair for the providers as they will not be able to make any profits and will be operating at a loss. In the production of electricity and supplying of water for example, the providers use engines to pump the water to pipes and to run the turbines that produce electricity. This engines usually use and with consume a lot of fuel as they run throughout in order to constantly supply the much needed utilities . Fuel prices in the market however are never constant and always fluctuate.
The cost of electricity and water basically depends on fuel prices hence when they are low the ratings should be low and increase when fuel prices increase. Natural gas utilities also heavily use fuel in the running of the machines that are used in the liquidification and gasification processes. This implies that most of the utilities are dependant on fuels whose prices are never constant. It only is reasonable for the rates to be flexible so as to ensure fairness for all the stake holders.
This will also enhance efficiency as the providers can not effectively provide the utilities if they are operating under loses. 3 Constitutional Bases for Federal and State Regulation. The constitutional bases for the federal and state regulation are from the United State’s Constitution which is the land’s supreme law. This constitution has the Supremacy clause which proclaims the constitution, the united state’s treaties and the federal states as the highest form of law in the United States (Friedman, 2004).
The clause thus establishes the three as the supreme law of the land. According to the clause, even state laws and judges are expected to uphold the three and comply with their acts and clauses even in the event that the state laws and legislation contradict with the three. The supremacy clause thus forms the bases federal laws (Schwartz, 2003) . These is laws enacted and passed by the federal government (constituting of representatives from all the states of the United States of America (Friedman, 2004).
Federal laws in the United States are constituted in the federal constitution. The supremacy clause also defines the boundaries and limits of the federal laws’ jurisdiction and controls the laws of all the fifty states of the United States of America. The clause generally provides the bases for federal and state regulations and guides there enaction ensuring that none of the laws made by either of the two violates the constitution of the land. What are the Constitutionally Constraints on Public Utility Regulation
The constitutional constraints on public utility regulation include constitutional challenges on the economic regulation efforts that were made earlier on some specific industries. The Supreme Court also maintained that it was constitutional for all the calculations that were supposed to come up with reasonable rates had to be based on the used property’s value which was supposed to be fair for the public’s convince. Constitutional challenges that faced the rate making decisions of the states and federal government required the intervention of the supreme Court for several years.
This practice was ended by the Supreme Court when it adopted a test that was based on the end result and assessing of the rate order’s impact. The impact was determined by how constitutional it was. b) Two Major Supreme Court Cases Relating to State regulation of Industries are; Munn v. Illinois. This was a case in the United States which took place in 1876 and involved agriculture and corporate rates. Munn who was one of the partners of some warehouse in Chicago was being charged for violating the Illinois laws by transacting grain elevators business without acquiring a license from the circuit court of the State.
Mann and his partner pleaded not guilty as they had used their own capital to lease the building which housed the grain warehouse and carried on with the business of storing grains and charging those who stored some storage compensation fee whose rate had been agreed upon by all the warehouses in Chicago and had been gazetted earlier on. The two later mixed grains that had been stored in bulk by different owners and went on with the business of receiving, delivering and storage of grains that was for hire without having consulted and getting a license that permitted them to transact such a public business.
They also had not filed a bond to the Illinois state people through the clerk of the Circuit Court as was required by the laws of the Illinois state. The people of this state needed to give their consent before the two individuals could continue dealing in business that was in the interest of the public. The two were found guilty of violating the laws of the Illinois state and fined a hundred US dollars.
The case involved Chief Justice Morrisson Remick’s opinion in which he supported the legislation to regulate the rates of grain elevators that had been proposed by National Grange arguing that business interests that were used and intended for public good needed the government’s regulation. The result was that the two were found guilty and fined. The significance of the ruling was that it was extended to other public utilities such as railroads hence affected their rates as they were argued to be business interests that were privately owned and served public’s interests.
the ruling gave power to the state to control other businesses within it that were privately owned. The ruling of this case gave power to states that allowed them to regulate some businesses that operated within them and their borders inclusive of the rail roads. It is argued to have formed the foundation for regulations by the federal government. As a result of the ruling, state laws currently influence and regulate businesses such as transport of both people and goods, the working conditions of employees and the manufacturing and processing of goods that are intended for sale to members of the public.
The ruling ensured that the rates were governed by laws and policies that were constitutional. The supreme court decided that a private institution could be regulated to protect the interests of the public if its operation s involved utilities that served the public. It was decided that the Illinois state had not violated the Fourteenth Amendment Act by regulating the charges and rates on use of grain elevators for a business as it had been argued. Nebbia v. New York. This case involved Leo Nebbia versus the people of New York in .
It involved claims and arguments that the government had no power and rights to regulate milk retail prices hence required the supreme court to determine whether it was lawful for the state of New York to regulate these prices. The sharp decline in the prices of farm products after the first World adversely affected dairy farmers in New York (Scruton, 2000). In an effort to address the issue and provide a solution, the state led by Senator Perley A. Pitcher decided on making and implementing policies that regulated the prices of milk such that maximum and minimum prices were set.
All dairy farmers were hence required to comply with the policy. The prices set by the board however were perceived to only benefit the dairy dealers more than the farmers as the minimum price for the farmers was too low. This caused farmers to strike in protest as they sought for an opportunity to challenge the statute’s constitutional basis. Leo Nebbia was found guilty of violating the statute which set the minimum retail price of milk at 9 cents by selling a loaf of bread that went for 5 cents and two sold two quarts of milk for 18 cents. he was found guilty of cutting the prices and fined 5 US dollars (Scruton, 2000).
He challenged the ruling claiming it was against the Equal Protection Clause of the Fourteenth Amendment. His appeal was affirmed and taken to the supreme court for hearing. The findings of the appeal however were that the supreme court upheld and supported the New York Milk control act of 1933 arguing that in the absence of constructional restrictions in the federal or constitutional laws, then the state had the power to implement its laws that would ensure public restrictions. Such laws were imp[lamented to protect the needs and interests of public members. The Supreme Court hence found Nebbia guilty (Scruton, 2000).
The significance of this case is that the Supreme court clearly showed that the state had the power and the right to regulate private businesses as long as they functioned to serve the members of the public. This case cleared the confusions that had existed after the Mann versus Illinois case where it was not clear if the state had the right to interfere with privately owned businesses. The two cases thus gave power to states to control some privately owned businesses that affected the interests of the public within their boarders. c. The Nature of Regulatory Statues (The types of things are laid out in the basic utility laws)
Regulatory regulation statutes include federal regulation where they interact with federal laws and uphold them ensuring there is no contradiction and address employment discrimination, diversity in jurisdiction, security laws and myriad others Another feature of regulatory statutes is state regulation in which the statutes interact with state laws. They involve the constitution, LLC Statute for any purposes that are lawful and forms of partnerships. They also are characterized by a statutory solution There finances are characterized by sharing of certificates, limiting liabilities, stock options and profit
allocation. There management also is well defined with who holds the leadership authority and who the members are. Other things laid down in basic utility laws include the procedure of determining the utility cost, ways of ensuring that utility supply is efficient and that utility transactions are carried out properly. The laws ensure the public’s value are considered. They also provide opportunity for competition so that monopoly can be eliminated. d). The Major Federal Statutes for the Regulation of electric, natural gas, and telecommunication utilities.
What are the areas of regulatory jurisdiction? How has federal regulation of the various utilities changed over time? The major federal statutes for the regulation of electric, natural gas, and telecommunication utilities were to ensure that concerned commissions of the different utilities had performed their duty of regulating the public utilities ensuring that they reached the extend of the statutes jurisdiction. The federal statutes also provided for impartial regulation of the utilities ensuring that there was no discrimination and fairness was maintained.
They also provided reliable, safe and efficient services to the public that were economical and wise. The federal statutes provided a balance between the consumers interests and those of the shareholders of the utilities by allowing the public utilities to operate and earn a fair gain on their investments while they provided consumers with rates that were reasonable and just. The statutes allowed for competition to exist especially in the telecommunication utilities so as the customers could benefit from quality services and the cost rates.
They also provided the individuals who were not advantaged economically with the basic network services. The statutes ensured that telephone services were available to rural areas and that the providers maintained the efficiency from the payments received. The major areas of jurisdiction of federal statutes was the rates and prices demanded by the providers of the public utilities, the transmission and sale of the utilities within the states, and jurisdiction over the facilities used in transmission and sale of the public utilities.
Another area of their jurisdiction is penalty and remedy in the event the regulations are violated. The federal regulation of the various utilities however no longer is as it was before. Most states no longer regulate the supply of the public utilities in accordance with the federal regulations. Each state implements its own regulations that enable it to meet the demands of its citizens as the demand and supply vary from state to state. This implies that most states use regulations that are convenient for them.
List of References Ervin, S. (2009). The State of Energy Regulation in the United States. Retrieved 12th May 2009. From, <http://www. naruc. org/Publications/US%20Regulation_Status_NARUC_Ervin. pdf>. Friedman,L. M. (2004). American Law in the Twentieth Century. New Haven: Yale University Press. Schwartz, B. (2003). The Law in America. 3rd ed. New York: American Heritage Publishing Co. Pound, R. (2001). Social Control Through Law. New Brunswick, NJ: Transaction Publishers. Kitch, Edmund W.
; Bowler, Clara Ann (1978). “The Facts of Munn v. Illinois”. Supreme Court Review (1978): 313–343. Scruton, R. (2000). A Dictionary of Political Thought, Fourth edition. London: Macmillan. All Business. 2009. The Economics of Public Utility Regulation. Retrieved 13th May from http://www. allbusiness. com/legal/laws-government-regulations-business/108047-1. html. Entrepreneur. (2009). Retail Rate Development: The role of the Cooperative board. Retrieved 13th May 2009 from, <http://www. entrepreneur. com/>.