Introduction

Question 1

What are the four economic problems energy law seeks to address?

Answer 1

1. Market Power
2. Waste
3. Negative Externalities
4. Free Riding

Question 2

Market Power

Answer 2

• Power of firm to restrict output and increase selling price
  1. Horizontal Market Power: Creating a monopoly
  2. Vertical Market Power: erecting barriers to entry, control independent inputs

Terms: Leverage, reciprocal dealing, discrimination, market manipulation

Question 3

Natural Monopolies

Answer 3

Happen naturally in energy because of nature of infrastructure, production, transportation, regulation.
- Until 1980’s, regulators very accepting of natural monopolies
- Due to diversity of generation now, maybe not as natural

Otter Tail
1. Cannot prevent potential competition.
2. Illustrates that FERC and Sherman Act can collide
3. FERC can order inter-connection.

Question 4

Waste

Answer 4

1. Physical Waste: gushers, flaring, oil in trenches, loss in transit, inefficient use of infrastructure, inefficient use of energy
2. Economic Waste: overproduction & resource priced too low
   - harder to deal with because people don’t want to restrict production

Ohio Oil: (1) A court can grant injuction for waste of natural resource (2) this explands regulation significantly to affect your property rights and protect others

Question 5

Externalities

Answer 5

1. Positive: When an individual does not capture all the benefits of actions
2. Negative: individual doesn’t bear all costs of actions (e.g. pollution)
   - Externalities are everywhere, most are not addressed

Shafer: illustrates significant negative externalities related to energy production and statutes created to address them.

Question 6

Free Riding

Answer 6

1. AKA, “public goods” problem
2. Actor cannot capture all benefits so pays for costs that others benefit from for free.

Westar Energy: Illusrates free-riding problems when solar-independent customers don’t pay share of fixed utility costs (rate design).

Question 7

National Environmental Policy Act (NEPA)

Answer 7

Requires federal agencies to prepare EIS
- section 102(2)(c), only part that is currently enforceable.

Question 8

Federal Power Act

Answer 8

Requires FERC to regulate dams on “navigable waters”

Dual Goals of FPA
1. Create power
2. Give equal consideration to wildlife, environment, recreation
- but, people at FERC more concerned with power, not wildlife

Question 8

Endangered Species Act

Answer 8

1. Agency must engage in a “section 7 consultation” with Fish and Wildlife service regarding effects of actions
   - Unless exempted (God Squad)
2. Section 3: when a species is endangered, you cannot “take” it (take means a lot of things)
   - Incidental take statement: escape valve for ESA, you won’t “take”, but we’ll excuse the accidental killing.