An evaluation of incentive regulation for electric utilities

Abstract

This empirical study examines the determinants and impacts of incentive regulations introduced by utility commissions in the late '70s and early '80s. Rewards for generating plant utilization and low heat rates were found to have been introduced in states whose firms exhibited relatively high managerial slack (or relatively higher costs). However, the empirical results did not find that the introduction of specific cost component incentives improved overall operating cost Performance.

The Electricity Industry Reform in Korea: Lessons for Further Liberalization

“…Hawdon (1996), using cross-sectional data for developing countries, finds that privatized firms in their sample had higher productivity efficiency. Berg and Jeong (1991) analyze the effects of the introduction of incentive regulation in the US and suggest that relative inefficiency is not reduced by narrow incentive regulation focused on plant utilization and thermal efficiency. Cullmann and Hirshhausen (2008) provides a cross-country efficiency analysis of electricity distribution companies in the East European transition countries of Poland , the Czech Republic, Slovakia, and Hungary.…”

Review of performance-based ratemaking plans for US gas distribution companies

“…During the 1970s and 1980s, many electric utilities took on incentive mechanisms that targeted fuel and purchased power costs or power plant performance. The empirical evidence ofbenefits from such measures is weak (Berg and Jeong 1991;Graniere et al 1993). There have been no empirical studies on the performance of targeted procurement incentives in the gas industry, in part because they have not been adopted as widely as they have been in electric industry.…”

“…Actual experience with incentive regulation appears to be the greatest in the telecommunications and interstate rail industries (Johnson 1989;Lowry 1991). Incentive ratemaking mechanisms for electric utilities have also been adopted, although most mechanisms target performance in the areas of fuel and purchased power costs and power plant performance (Joskow 1986;Berg and Jeong 1991). In the natural gas industry, specific incentive regulation plans for interstate pipeline companies and LDCs have been proposed (Brown et al 1989;Brown et al 1991;Lyon and Toman 1991;Lowry et al 1993) and price-cap regulation for gas utilities has been adopted in the U.K for British Gas (CERA 1993).…”

Performance-based ratemaking for electric utilities: Review of plans and analysis of economic and resource-planning issues. Volume 1

“…In the U.S. natural gas industry, a handful of gas distribution companies have experimented with incentive regulation (Comnes 1994), and incentive regulation has been proposed but not implemented for natural gas pipelines (FERC 1992;Jaffe 1992). Incentive ratemaking mechanisms for U.S. electric utilities have also been adopted although most mechanisms target performance in the areas of fuel and purchased power costs, and power plant performance (Joskow and Schmalensee 1986;Berg and Jeong 1991). As already noted in this report, we focus on comprehensive rather than targeted mechanisms.…”

“…Before the introduction of the comprehensive plans reviewed in this report, incentive regulation in the electricity industry consisted mainly of targeted incentives which, by definition, means that different marginal incentive powers apply to different services or cost categories. Economists'are generally distrustful of the differential marginal incentive powers caused by targeted incentives, and empirical work has provided little evidence that these rates are useful in decreasing overall costs Jeong 1991 andGraniere 1993).…”