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The Effect of a Fuel Adjustment Clause on a Regulated Firm's Selection of Inputs

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  • Frank A. Scott, Jr.

Abstract

When input prices are changing rapidly, the delays inherent in rate-of-return regulation can result in rate decisions that are outdated before they can be implemented. Many regulatory commissions have adopted fuel adjustment clauses to remedy this problem. Fuel clauses adjust output price for changes in fuel costs so that the utility's profit remains relatively unaffected. Fuel adjustment clauses are now used in almost all the 50 states and the District of Columbia; a survey by the National Association of Regulatory Utility Commissioners (NARUC) (1978, p. 6) revealed that only 7 states did not permit fuel clauses.

Suggested Citation

  • Frank A. Scott, Jr., 1985. "The Effect of a Fuel Adjustment Clause on a Regulated Firm's Selection of Inputs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 117-126.
    • Handle: RePEc:aen:journl:1985v06-02-a09
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    References listed on IDEAS

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    1. R. Mark Isaac, 1982. "Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 158-169, Spring.
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    Cited by:

    1. Førsund, Finn & Granderson, Gerald, 2013. "The impacts of the Clean Air Act on production cost, and the substitution between inputs in the electric utility industry," Energy Economics, Elsevier, vol. 40(C), pages 785-794.
    2. Gerald Granderson & Finn Forsund, 2014. "Rate of return regulation and the Le Chatelier principle," Journal of Productivity Analysis, Springer, vol. 41(2), pages 263-275, April.

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    JEL classification:

    • F0 - International Economics - - General

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