Money for nothing: Restructuring rates to encourage conservation
Since Thomas Edison first tried to convince power companies to base profits on the quality of service provided rather than on the amount of power generated and sold, a strong alternative vision of the proper incentive structure for electric utilities has existed. While the power industry capitalized on Edison`s technological innovations, it ignored his business ideas. Hence, the electric utility industry developed under what we now regard as {open_quotes}traditional{close_quotes} cost-of-service ratemaking. Unfortunately, this ratemaking structure rewards utilities for producing and selling as much electricity as possible. Our growing understanding of the impact of electrical power production on the environment makes it imperative that we reward utilities for the efficient provision of needed electrical services and not just for the amount of power sold. This Note examines recent efforts to revamp the cost-of-service structure in order to break the link between utility sales and profits and thereby encourage conservation. First, this Note analyzes the traditional rate structure and the incentives it produces. Then, it explores two competing visions of reform. Some economists call for the total deregulation of utilities in order to send more accurate price signals to those who can most easily make conservation investments, i.e., consumers. Other commentators argue that serious systematic distortions in consumer response to energy price signals prevent deregulation from achieving efficient results. Utility commissions should retain regulatory authority, they argue, to reward utilities that provide adequate electrical service as efficiently as possible. This Note concludes that utility commissions must attempt to restructure rates to encourage more conservation.
- OSTI ID:
- 245290
- Journal Information:
- Virginia Environmental Law Journal, Vol. 11, Issue 4; Other Information: PBD: Spr 1992
- Country of Publication:
- United States
- Language:
- English
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