The case for indexed price caps for U. S. electric utilities
Indexed price caps are a promising alternative to traditional, cost-of-service utility rate regulation. In just a decade, they have sprung from the drawing boards of economists to use by major utilities in a number of industries. Several authors have discussed the merits of indexed price caps for U.S. electric utilities. Despite their efforts, many parties to electric utility policy making are unfamiliar with the subject. This is unsurprising given the policy controversies that already embroil the industry. It is also unfortunate, since indexed price caps may help solve some of the problems that prompt these controversies. Indexed price caps can improve electric utility rate regulation in two ways. Utilities would have strong incentives to improve performance without the micromanagement that increasingly characterizes state-level regulation. Utilities could also be granted more extensive marketing freedoms, since indexes can protect customers from cross-subsidization. Two areas of concern about indexed price cap plans have emerged in recent discussions that the author has held with officials of electric utilities, intervenor groups, and regulatory agencies. Officials are often unclear on plan details, and therefore may not appreciate the degree of flexibility that is possible in plan design. Confusion over the available options in price cap adjustment indexes and the logic behind them is especially widespread. Officials also desire a clearer expression of how indexed price caps can coexist with current regulatory initiatives. This article details the major attributes of index plans, provides a brief history of indexing, discusses index design options in depth, and concludes with a vision of how indexed price caps can be made operational in today's electric utility industry.
- OSTI ID:
- 6908408
- Journal Information:
- Electricity Journal; (United States), Vol. 4:8; ISSN 1040-6190
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
POLICY AND ECONOMY
ELECTRIC UTILITIES
PRICING REGULATIONS
RATE STRUCTURE
COMPETITION
CONSUMER PROTECTION
ECONOMICS
FINANCIAL INCENTIVES
MANAGEMENT
MARKET
PERFORMANCE
PLANNING
PUBLIC UTILITIES
REGULATIONS
290201* - Energy Planning & Policy- Economics- (1992-)
296000 - Energy Planning & Policy- Electric Power