This paper should help regulators assess FRP proposals, especially in terms of how they affect different regulatory objectives and differ from traditional ratemaking. It advises regulators to have an open mind about FRPs. These rates do have some advantages over traditional ratemaking, but these advantages depend on details of design and execution. One important requisite for regulatory approval of an FRP, consistent with “just and reasonable” rates, is that the utility must demonstrate high performance in cost efficiency and non-cost areas of operation integral to consumer well-being. A badly structured FRP can produce poor incentives for a utility, causing customers to pay more for utility services than they would under traditional ratemaking and other mechanisms.

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Funding the National Broadband Plan through Federal Universal
Service Reform of the High-Cost Fund: Key Questions

“Everyone in the United States today should have access to broadband services supporting a basic set of applications that include sending and receiving email, downloading web pages, photos and video, and using simple video conferencing.”

The National Broadband Plan, p. 135

In order to “jump start” the national deployment of broadband, Recommendation 8.6 of the plan calls for shifting up to $15.5 billion in federal high cost support funds from the voice network to broadband.

The FCC makes four specific recommendations for shifting these existing high cost funds to broadband deployment:

1. Immediately issue an order to implement the reduction in HCF voluntarily agreed to by Sprint and Verizon Wireless as part of an earlier merger agreement.
2. Require rate-of-return carriers to move to incentive regulation.
3. Redirect Interstate Access Support funding (IAS) to broadband deployment.
4. Phase out legacy high cost support to competitive ETCs.

These recommendations raise a number of key questions that must be answered to ensure that states, consumers, and carriers are not negatively impacted during the transition to broadband.

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What Does Water Really Cost?
Rate Design Principles for an Era of Supply Shortages, Infrastructure Upgrades, and Enhanced Water Conservation

Supply shortages, water main breaks, water conservation, and other challenges call for clarity in water rate design. In most jurisdictions, water ratemaking is based on principles and rate designs established many decades ago. But substantial changes are occurring in the design of water rates, particularly in areas experiencing water shortages. Further, some of the basic principles of water rate design have fallen into disuse by regulators and expert witnesses, impeding the ability of commissions to meet these challenges by setting rates that bear a reasonable relationship to the cost of serving different types of customers.

After reading this paper, regulators will have a better understanding of essential water rate design principles and be able to make informed choices about the appropriate rate structure for investor-owned water utilities.

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