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48-583: The STB has broad economic regulatory oversight of railroads in the United States, including matters related to the construction, acquisition , abandonment of rail lines, railbanking , carrier mergers, and interchange of traffic between carriers and some passenger rail matters. The board also has jurisdiction over the "intercity bus industry, non-energy pipelines, household goods carriers’ tariffs, and rate regulation of non-contiguous domestic water transportation". The board comprises five members nominated by

96-512: A de facto monopoly (or " natural monopoly ") for the services they provide within a particular jurisdiction. Prominent public utilities that must utilize ratemaking to set rates include railroads, natural gas distribution, telecommunications , and electricity generation and distribution. In the United States , where many industries classified as public utilities are either private businesses or publicly traded corporations , ratemaking

144-606: A fair revenue is available in order to continue to attract investors and borrow money. This creates competing aims of capital attraction and fair prices for customers. Utility companies are therefore allowed to charge "reasonable rates," which are generally regarded as rates that allow utilities to encourage people to invest in utility stocks and bonds at the same rate of return they would in comparable non-regulated industries. State laws typically restrict utilities from large, sudden rate increases. Utilities should implement new rates over time so that consumers and business can adapt to

192-572: A forum for resolving surface transportation disputes and other matters within its jurisdiction. It has the authority to limit or remove regulatory requirements where appropriate. The Board comprises five members nominated by the President and confirmed by the Senate for five-year terms. The President designates the Board's chairman from among the members. As its chief executive, the chairman coordinates and organizes

240-449: A regulatory agency or a court. Managerial good faith is presumed. Although both agencies and courts have the legal authority to supervise the utility's management, they will not substitute their judgment unless there is an abuse of managerial discretion. Hence, litigation involving operating expense issues has been light. The above-described formula may be used to calculate a firm's allowed revenues (cost-of-service regulation). However, if

288-635: A set of rules and trends. In systems theory , these types of rules exist in various fields of biology and society , but the term has slightly different meanings according to context. For example: Regulation in the social, political, psychological, and economic domains can take many forms: legal restrictions promulgated by a government authority, contractual obligations (for example, contracts between insurers and their insureds ), self-regulation in psychology, social regulation (e.g. norms ), co-regulation, third-party regulation, certification, accreditation or market regulation. State -mandated regulation

336-432: A simple answer to a telephone inquiry to lengthy informal dispute resolution efforts between railroads and shippers. The Office of Economics analyzes rate cases , conducts economic and financial analyses of the railroad industry, and audits Class I railroads . The Office of Economics, Environmental Analysis and Administration is responsible for undertaking environmental reviews of proposed STB actions in accordance with

384-437: A utility's revenue requirement is established in a quasi-judicial proceeding called a rate case, overseen in most countries by monopoly regulators, the focus turns to translating revenue requirements into customer rates. Though an oversimplification, most revenue requirements are translated into a rate per unit of commodity used by a customer. In electric utilities, the unit is typically a kilowatt hour, or "kWh"; for natural gas,

432-420: A very high degree regulated by the labour market parties themselves (self-regulation) in contrast to state regulation of minimum wages etc. Regulation can be assessed for different countries through various quantitative measures. The Global Indicators of Regulatory Governance by World Bank 's Global Indicators Group scores 186 countries on transparency around proposed regulations, consultation on their content,

480-486: Is political because the product is determined to be a social necessity and rates must be fair across different classes of consumers. Additionally, ratemaking can be designated to serve other social purposes. Although it can be said that all regulation is a combination of politics and economics, ratemaking is frequently more technical. Ratemaking has five functions: These regulatory goals can conflict. When prices are kept below market, efficiency suffers. When prices exceed

528-456: Is $ 10 million, and it expects to sell 100 million units, the rate per unit is $ 0.10 cents/unit. If the utility actually sells 100 million units at $ 0.10 cents/unit, it will collect its $ 10 million revenue requirement. However, if a utility sells fewer units than expected, it will collect less than its $ 10 million revenue requirement, and if a utility sells more units than expected, it will collect more than its $ 10 million revenue requirement. This

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576-518: Is a staff of 117 (FY2018) with experience in economics, law, accounting, transportation analysis, finance, and administration. The Office of Public Assistance, Governmental Affairs, and Compliance is the agency's principal point of contact with Congress, state and local governments, the media, industry stakeholders, and the general public. This office includes the Rail Customer and Public Assistance Program, where Board staff solves problems ranging from

624-750: Is also more likely to attract executives experienced in working in competitive environments. The Energy Act of 1992 in the United States removed previous barriers to wholesale competition in the electric utility industry. Currently twenty-four states allow for deregulated electric utilities: Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New Mexico, New York, and Washington D.C. As electric utility monopolies have been increasingly broken up into deregulated businesses, executive compensation has risen; particularly incentive compensation. The traditional rate formula

672-487: Is analysed in empirical legal studies, law and economics, political science, environmental science, health economics , and regulatory economics . Power to regulate should include the power to enforce regulatory decisions. Monitoring is an important tool used by national regulatory authorities in carrying out the regulated activities. In some countries (in particular the Scandinavian countries) industrial relations are to

720-615: Is government intervention in the private market in an attempt to implement policy and produce outcomes which might not otherwise occur, ranging from consumer protection to faster growth or technological advancement. The regulations may prescribe or proscribe conduct ("command-and-control" regulation), calibrate incentives ("incentive" regulation), or change preferences ("preferences shaping" regulation). Common examples of regulation include limits on environmental pollution , laws against child labor or other employment regulations, minimum wages laws, regulations requiring truthful labelling of

768-403: Is intended to produce a utility's revenue requirement: The elements of the traditional rate formula are defined as: The traditional rate formula encourages capital investment because it provides a rate of return on the rate base. The more a utility invests, the more money it earns. This is why for-profit utilities prefer capital investment over operating expenses, called "capital bias". Once

816-525: Is sometimes further subdivided. The compensation received by the executive in utility companies often receives the most scrutiny in the review of operating expenses . Just as regulated utilities and their governing bodies struggle to maintain a balance between keeping consumer costs reasonable and being profitable enough to attract investors, they must also compete with private companies for talented executives and then be able to retain those executives. Constraints from regulation have been shown to affect

864-628: Is typically carried out through the authority of a state regulatory body, most often a public utilities commission in an administrative law format. At the national level the Federal Energy Regulatory Commission (formerly the Federal Power Commission ) also exercises authority over matters of intrastate wholesale sales of electric power. Ratemaking has an economic dimension because it attempts to set prices at efficient (nonmonopolistic, competitive) levels. Ratemaking

912-421: Is why utilities prefer to sell more units than expected, called "throughput incentive". A firm's operating expenses, such as wages, salaries, supplies, maintenance, taxes, and research and development, must be recouped if the utility is to stay operational. Operating costs are most often the largest component of the revenue requirement, and the easiest to determine. Occasionally, operating expense items have caught

960-707: The Bureau of Transportation Statistics within the Department of Transportation . Since its founding, various legislation pertaining to the STB's functions has been introduced in Congress. In 2015, the Surface Transportation Board Reauthorization Act was passed, which expanded the Board from three to five members. The passage of the legislation transformed the STB, which had been "administratively aligned" with

1008-574: The Hobbs Act , when an STB order or decision is challenged in the U.S. Court of Appeals , both the STB (represented by the agency's attorneys) and the United States (represented by U.S. Department of Justice (DOJ) attorneys) must be named as "respondents" (defendants), and both have authority to appear in court in such cases. STB and DOJ attorneys jointly defend the agency's decisions, with the STB's attorneys preparing written briefs (in consultation with DOJ attorneys) and presenting oral arguments on behalf of

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1056-557: The National Environmental Policy Act and other environmental laws and making environmental recommendations to the STB. The Office of the Managing Director handles administrative matters such as personnel, budget, and information technology. The Office of Proceedings (OP) is primarily responsible for developing the public record in formal cases (or proceedings) filed with the STB, making recommendations regarding

1104-504: The United States Environmental Protection Agency and Occupational Safety and Health Administration . Rate case Utility ratemaking is the formal regulatory process in the United States by which public utilities set the prices (more commonly known as "rates") they will charge consumers. Ratemaking, typically carried out through "rate cases" before a public utilities commission , serves as one of

1152-414: The Board and assumes the chairman's duties as appropriate. Additionally, the vice chairman oversees matters involving the admission, discipline, and disbarment of non-attorney Board practitioners. The current vice chairman is Karen Hedlund , appointed on January 9, 2023, succeeding Michelle A. Schultz in the board's annual rotation of that position. Assisting the Board in carrying out its responsibilities

1200-680: The Department of Transportation while still decisionally independent, into an entirely independent federal agency . In response to concerns regarding increasing corporate concentration in the rail industry, the STB has considered proposals to encourage rail competition. In 2016, a proposal was made to establish "reciprocal switching rules" to require railroads to create arrangements where shippers could access competing carriers instead of other options. In 2022, Chairman Oberman supported reciprocal switching rules, arguing they would address shippers' complaints and encourage industry competition. The STB has

1248-460: The Federal Government. In performing defensibility assessments, OGC attorneys meet with other STB staff to discuss cases before draft decisions are prepared. Defensibility assessments are crucial to issuing sound choices that are less likely to be challenged and, if challenged, are more likely to be upheld. Regulation Regulation is the management of complex systems according to

1296-466: The Office of Proceedings obtains and applies any necessary input from economic, financial, operational, environmental, and other legal staff experts throughout the agency. The Office of Proceedings includes a clearance unit responsible for tabulating votes on STB cases and recording the official outcome of those votes and a recordations unit that enters data about a filing's primary and secondary documents into

1344-636: The President, each subject to Senate confirmation. Since 2024, Democrat Robert E. Primus has served as chair of the STB. The STB was established on January 1, 1996 to assume some of the regulatory functions that had been administered by the Interstate Commerce Commission when the ICC was abolished. Other ICC regulatory functions were either eliminated or transferred to the Federal Motor Carrier Safety Administration or

1392-568: The STB Recordations database, which is accessible to the public on the STB web site. The Office of the General Counsel (OGC) responds to questions on various legal issues. However, its primary mission is to defend the STB's decisions in court and assess the defensibility of agency decisions that might be challenged in court. Unlike most Federal agencies, the STB has independent litigating authority ( 49 U.S.C.   § 703(d) ). Under

1440-555: The agency's work and acts as its representative in legislative matters and relations with other governmental bodies. The current chairman is Democrat Robert E. Primus , who was nominated to the STB by President Donald Trump in 2020, confirmed by the Senate, and sworn in in January 2021. Primus was chosen by President Joe Biden to serve as chairman of the STB on May 11, 2024, succeeding Martin J. Oberman , who had been Chairman between January 2021 and May 2024. The vice chairman represents

1488-583: The ancient world, and gold may have operated to some degree as an international currency. In China, a national currency system existed and paper currency was invented. Sophisticated law existed in Ancient Rome . In the European Early Middle Ages , law and standardization declined with the Roman Empire, but regulation existed in the form of norms, customs, and privileges; this regulation was aided by

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1536-461: The attention of regulatory agencies and courts, and these items have been examined more closely. Regulators must make two determinations. First, they must determine which items should be allowed as expenses. Second, regulators must determine the value of those expense items. The determination of value has generally been left to the management of the utility under the theory that these are essentially business decisions which will not be second guessed by

1584-586: The authority of statutes. Legislators created these agencies to require experts in the industry to focus their attention on the issue. At the federal level, one of the earliest institutions was the Interstate Commerce Commission which had its roots in earlier state-based regulatory commissions and agencies. Later agencies include the Federal Trade Commission , Securities and Exchange Commission , Civil Aeronautics Board , and various other institutions. These institutions vary from industry to industry and at

1632-540: The authority to regulate rates, service, construction, acquisition, railbanking and abandonment of rail lines, carrier mergers, and traffic interchanges. The STB also has oversight of pipeline carriers, intercity bus carriers, moving van companies, trucking companies involved in collective activities, and water carriers engaged in non-contiguous domestic trade. The Board has broad discretion, through its exemption authority from federal , state , and local laws, to implement transportation regulation. The Board provides

1680-408: The changing prices. This is known as the principle of gradualism. The price of a utility's products and services will affect its consumption. As with most demand curves , a price increase decreases demand. Through a concept known as rate design or rate structure , regulators set the prices (known as "rates" in the case of utilities) and thereby affect the consumption. With declining block rates ,

1728-405: The company's physical and financial assets . Limiting their control has been shown to reduce investment opportunities. The same constraints are placed on the board of directors for the utility by the monitoring or oversight of the utility commission and they are less likely to approve compensation policies that include incentive-based pay. The compensation for electric utility executives will be

1776-440: The federal and state level. Individual agencies do not necessarily have clear life-cycles or patterns of behavior, and they are influenced heavily by their leadership and staff as well as the organic law creating the agency. In the 1930s, lawmakers believed that unregulated business often led to injustice and inefficiency; in the 1960s and 1970s, concern shifted to regulatory capture , which led to extremely detailed laws creating

1824-581: The ingredients in food and drugs, and food and drug safety regulations establishing minimum standards of testing and quality for what can be sold, and zoning and development approvals regulation. Much less common are controls on market entry, or price regulation. One critical question in regulation is whether the regulator or government has sufficient information to make ex-ante regulation more efficient than ex-post liability for harm and whether industry self-regulation might be preferable. The economics of imposing or removing regulations relating to markets

1872-556: The level of compensation received by executives in electric utilities. Executive compensation usually consists of four parts: Regulated companies are less likely to use incentive-based compensation in addition to base salaries. Executives in regulated electric utilities are less likely to be paid for their performance in bonuses or stock options . Executives in regulated electric utilities also have less managerial control than those in unregulated or private industries. These executives are in charge of large numbers of workers as well as

1920-681: The lowest in regulated utilities that have an unfavorable regulatory environment. These companies have more political constraints than those in a favorable regulatory environment and are less likely to have a positive response to requests for rate increases. Just as increased constraints from regulation drive compensation down for executives in electric utilities, deregulation has been shown to increase compensation . The need to encourage risk-taking behavior in seeking new investment opportunities while keeping costs under control requires deregulated companies to offer performance-based incentives to their executives. It has been found that increased compensation

1968-623: The market, prices may not be reasonable. Both events have occurred during the history of utility regulation. The above goals attempt to serve the interests of the utility, its shareholders, consumers, and the general public. To be constitutional, a rate cannot be so high as to be confiscatory. Most state statutes further require rates to be just, reasonable, and non-discriminatory. Although utilities are regulated industries, they are typically privately owned and must therefore attract private capital. Accordingly, because of constitutional takings law , government regulators must assure private companies that

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2016-624: The per-unit price of utility consumption decreases as the energy consumption increases. Typically a declining block rate is offered only to very large consumers. If conservation is the goal, regulators can promote conservation by letting prices rise. A third possible rate design is a flat rate which charges the same price for all consumption. Ratemaking distributes wealth from consumers to utility owners. Ratemaking also involves redistribution of wealth among and within classes of customers. Utility customers are generally grouped in three categories – residential, industrial, and commercial. Each group

2064-426: The primary instruments of government regulation of public utilities. Historically, many different classes of business have been classified as public utilities , and thus have been legally mandated to go through the ratemaking process in order to determine the allowable service charges for their industry. Although the classification of public utilities has changed over time, typically such businesses must constitute

2112-399: The rates are set on the basis of a company's own costs, there is no incentive to reduce these costs. Furthermore, regulated utilities may have the incentive to overinvest. The purpose of performance-based regulation is to reduce the negative impact of information asymmetries and to motivate regulated companies to reduce their costs in order to increase profit. Usually, this is done by setting

2160-564: The resolution of issues presented in those cases, and preparing the decisions issued by the Board. The Office of Proceedings is a legal office consisting almost entirely of attorneys and paralegal specialists responsible for the majority of the cases at the STB. The office applies the Interstate Commerce Act , as amended by the ICC Termination Act of 1995 , as well as the Board's regulations. In carrying out its responsibilities,

2208-532: The unified Christian identity and a sense of honor regarding contracts . Modern industrial regulation can be traced to the Railway Regulation Act 1844 in the United Kingdom, and succeeding Acts. Beginning in the late 19th and 20th centuries, much of regulation in the United States was administered and enforced by regulatory agencies which produced their own administrative law and procedures under

2256-401: The unit is typically ten British Thermal Units, called a dekatherm, or "dkt"; in water utilities, the unit is typically a gallon. The formula for translating revenue requirements into customer rates (for example, cents per kWh) is Rate per unit = R (revenue requirement) / expected commodity sales in units in the upcoming year. The logic behind this is simple. If a utility's revenue requirement

2304-522: The use of regulatory impact assessments and the access to enacted laws on a scale from 0 to 5. The V-Dem Democracy indices include the regulatory quality indicator. The QuantGov project at the Mercatus Center tracks the count of regulations by topic for United States, Canada, and Australia. Regulation of businesses existed in the ancient early Egyptian, Indian, Greek, and Roman civilizations. Standardized weights and measures existed to an extent in

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