Abstract
The three and one-half years since my last invitation to a Research Seminar provide an interesting background for how cost is being used to establish regulatory prices. By May 1996, the industry had made considerable theoretical and practical strides in replacing traditional cost-plus regulation with price regulation. While cost information can be an important component of such regimes, price regulation severs the direct link among costs, regulated prices, and allowed profit. And one of the primary motivations for the new approach was the belief that reducing regulatory micromanagement and increasing the utility’s incentives to act efficiently would produce superior outcomes and thereby be more conducive to the onset of competition.
This paper addresses issues discussed in Kahn, et al. 1999. My discussion here has benefited from that collaboration.
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Tardiff, T.J. (2000). Cost Standards for Efficient Competition. In: Crew, M.A. (eds) Expanding Competition in Regulated Industries. Topics in Regulatory Economics and Policy Series, vol 37. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3192-7_9
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