Incentive vs. Conventional Regulation of New Utility Construction

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.

Issue Date:
Publication Type:
Journal Article
Record Identifier:
PURL Identifier:
Published in:
Journal of the Northeastern Agricultural Economics Council, Volume 13, Number 1
Journal of the Northeastern Agricultural Economics Council
Page range:
Total Pages:

 Record created 2017-04-01, last modified 2018-01-22

Download fulltext

Rate this document:

Rate this document:
(Not yet reviewed)