Regulatory cobweb: inflation, deflation, regulatory lags, and the effects of alternative administrative rules in public utilities

Journal Article · Thu Jul 01 04:00:00 EDT 1976 · South. Econ. J.; (United States)

DOI:https://doi.org/10.2307/1056344· OSTI ID:6125319

Spann, R M

The author argues that regulatory lag or the determination of regulatory prices based on previously recorded accounting costs generates a model of regulation quite similar to the classic cobweb model in agricultural economics. This model is then used to calculate the present value of the costs and benefits to consumers and to the regulated firm of the pattern of prices and outputs generated by regulatory lag as opposed to prices and outputs that might be generated by some regulatory equilibrium or textbook model of regulation in which price is always equated to average cost. The costs and benefits of regulatory lags in regulated electric utilities are calculated under alternative assumptions concerning demand elasticities, cost functions, rates of inflation, and rates of growth of demand. The model indicates the gains and losses due to regulatory lag may be quite large, and that the profitability of electric utilities is extremely sensitive to the rate of inflation under existing regulatory institutions. The model also provides some interesting insights into the currently observed phenomenon of voters simultaneously litigating against public utility rate increases (via various consumer groups) yet at the same time observing some basis of political support for various forms of aid to utilities such as state guarantees of credit, increased investment tax credits, and outright subsidies. 26 reference.

• Research Organization: Virginia Polytechnic Inst. and State Univ., Blacksburg
• OSTI ID: 6125319
• Journal Information: South. Econ. J.; (United States), Journal Name: South. Econ. J.; (United States) Vol. 43:1; ISSN SECJA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
296000 -- Energy Planning & Policy-- Electric Power
ACCOUNTING
COST BENEFIT ANALYSIS
DEMAND FACTORS
ECONOMIC ANALYSIS
ECONOMIC ELASTICITY
ECONOMIC GROWTH
ECONOMICS
ELECTRIC UTILITIES
INFLATION
MANAGEMENT
PUBLIC OPINION
PUBLIC UTILITIES
RATE STRUCTURE
REGULATIONS