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Incentive vs. Conventional Regulation of New Utility Construction

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  • Meyer, Joan K.

Abstract

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 regulatory agency with the level of overruns incurred, with conventional rate regulation. A discounted cash flow simulation model is employed based on data from an· electric generation project currently under construction in Central New York.

Suggested Citation

  • Meyer, Joan K., 1984. "Incentive vs. Conventional Regulation of New Utility Construction," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 13(1), pages 1-9, April.
    • Handle: RePEc:ags:nareaj:159268
    DOI: 10.22004/ag.econ.159268
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    References listed on IDEAS

    as
    1. Tyner, Wallace E. & Kalter, Robert J., 1977. "A Simulation Model foro Resource Policy Evaluation (revised version)," Staff Papers 184438, Cornell University, Department of Applied Economics and Management.
    2. Bernard W. Taylor & Ronald M. North, 1976. "The Measurement of Economic Uncertainty in Public Water Resource Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 58(4_Part_1), pages 636-643.
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