Incentive vs. conventional regulation of new utility construction

Extract: Major plant construction projects represent a large part of a typical utility's rate base and construction cost overruns are a perennial problem associated with these projects. The conventional approach to prevent overruns is direct regulatory oversight by a regulatory commission. Yet...

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Bibliographic Details
Published inJournal of the Northeastern Agricultural Economics Council Vol. 13; no. 1; pp. 103 - 111
Main Author Meyer, J.K
Format Journal Article
LanguageEnglish
Published Newark, DE Northeastern Agricultural and Resource Economics Association 01.04.1984
Subjects
construction
incentives
rates
regulation
Utility
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Summary:Extract: Major plant construction projects represent a large part of a typical utility's rate base and construction cost overruns are a perennial problem associated with these projects. The conventional approach to prevent overruns is direct regulatory oversight by a regulatory commission. Yet this approach fails to provide on-going incentives for the most cost effective decisions by the utility. This article contrasts an incentive method of regulation, which inversely relates the rate of return granted by the regulartory agency with the level of overruns incurred, with conventional rate reguation. A discounted cash flow simulation model is employed based on data from an electric generation prject currently under construction on Central New York.
ISSN:0163-5484
1068-2805
2398-4635
DOI:10.1017/S0163548400004155