Can incentive regulation improve utility performance. The inherent danger of a simple answer
US electric utilities face fewer incentives for efficient performance than nonregulated firms that operate in competitive markets, so regulators have traditionally relied on regulatory lag and a scrutiny of costs and management procedures. Characterizing the incentive programs which have been implemented by many state regulatory commissions as misguided, the author identifies an alternative adjustment mechanism with a potential for more effective promotion of utility performance improvements. The automatic rate adjustment mechanism (ARAM) links adjustments to cost elements recovered in a utility's rates to changes in external cost indexes for those cost elements. Ratepayers and utility shareholders would be better served by a regulatory scheme that relies on market forces, not shadow managements, to ensure efficient performance.
- Research Organization:
- Hagler, Baily, and Co., Washington, DC
- OSTI ID:
- 6075480
- Journal Information:
- Public Util. Fortn.; (United States), Vol. 115:1
- Country of Publication:
- United States
- Language:
- English
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