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Do Incentive Rates Provide Consumer Value? An Empirical Assessment from Ontario’s Electricity Distribution Sector

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  • Russell Houldin
  • Richard Carlson
  • Petar Prazic

Abstract

This article discusses empirical evidence regarding the theoretical claims that Incentive Rate regulation for electricity distribution creates greater consumer value than Cost of Service in terms of consumer rates. Institutional economists have identified a problem with IR in that it gives an incentive not to reduce consumer costs but to reduce adequate spending on asset maintenance. The Ontario electricity distribution sector combines both forms of regulation which creates an unusual opportunity to test the claims of increased consumer value by comparing the unit average revenues in years in which rates were set by CoS with those in which they were set by IR. The application of a t-test to data from 2011 to 2015 results in the acceptance of the null hypothesis at a 95% confidence level. The analysis concludes that there is no support for the claim that IR results in lower revenues collected from consumers.

Suggested Citation

  • Russell Houldin & Richard Carlson & Petar Prazic, 2019. "Do Incentive Rates Provide Consumer Value? An Empirical Assessment from Ontario’s Electricity Distribution Sector," Journal of Economic Issues, Taylor & Francis Journals, vol. 53(4), pages 1029-1047, October.
    • Handle: RePEc:mes:jeciss:v:53:y:2019:i:4:p:1029-1047
    DOI: 10.1080/00213624.2019.1664238
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    Cited by:

    1. Crowley, Nick & Meitzen, Mark, 2021. "Measuring the price impact of price-cap regulation among Canadian electricity distribution utilities," Utilities Policy, Elsevier, vol. 72(C).

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