Utility Industry Restructuring Since the end of

Most industrialized countries depend primarily on oil and natural gas for their energy needs. In the United States alone, these two commodities account for roughly 67 percent of all energy consumed. However, these energy sources are depletable and nonrecyclable (Tietenburg, n.g., pp. 153-1985). In recent decades, energy shortages have caused widespread public concern. Consequently, considerable attention has been focused upon such issues as the pricing and allocation of exhaustible energy supplies (Baumol et al., n.g., pp. 138-151).

A production function may be defined as "the process by which inputs or resources such as labor and capital are transformed into output" (Howe & Rasmussen, n.g., p. 15). Essentially, the production function gives the maximum quantity of output that can be obtained through various input combinations. With public utilities, the production function is associated with three technological circumstances. For one, the producer is phys

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ities' financial well-being and provide customers with more stable rates. In addition, California's regulators began to pay more attention to such things as ratepayer interests and service reliability. For the most part, regulatory programs attempted to accomplish the following objectives: (1) protect consumers from uncertain rates; (2) protect utilities from financial risks; and (3) slow rising utility costs. California's Public Utility Commission sought to minimize the effects of volatile economic conditions through the continued use of financial adjustment mechanisms and balancing accounts. Additionally, the Commission attempted to minimize utility cost increases by reducing fossil fuel use, delaying the construction of new plants, and more efficiently utilizing energy resources. Overall, the Commission's role in resource procurement helped to "balance the risks shifted to consumers through balancing accounts and rate adjustment mechanisms" (Coe et al., 1993, pp. 57-93). To compensate for the realignment of risk, the Commission became more involved in utility decision making and management. This new partnership between the utilities and regulators would eventually continued into the 1990s. In recent years, advances in
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