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Regulators say they have problems with inefficient utilities. Rates could be lower, and maybe profits could be higher, if the companies would cut down on their bloated expenditures, poor investments, and dumb mistakes. If this is the problem, why not just tell them to do it right? Why not let the regulators regulate? If the company is wasting money, the regulator should order them to cut their costs. If they fail to do so, the regulator should — as one participant in the regulatory process puts it — “apply the two-by-four” or otherwise discipline the errant firm.
KeywordsPublic Interest Utility Service Consumer Surplus Agency Problem Incentive Regulation
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