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

Author

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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prices are changing rapidly, the delays inherent in rate-of-return regulation can result in rate decisions that are outdated before they can be implemented.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, , vol. 6(2), pages 117-126, April.
    • Handle: RePEc:sae:enejou:v:6:y:1985:i:2:p:117-126
    DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No2-9
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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

    Rate of return regulation; fuel adjustment clause; Input selection; Utilities;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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