Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices
AbstractIncreases in the cost of fossil fuels helped make automatic fuel cost adjustment mechanisms popular institutions for regulating electric utilities. Economic intuition suggests that these clauses could distort incentives for input choice. The purpose of this article is to explore the theoretical basis for such potential distortions in a world of uncertain fuel prices. Two different models of the regulatory environment are considered. For each, it is shown that input choice incentives are altered in the presence of a fuel adjustment mechanism. Finally, some suggested benefits of such clauses to the financial position of the utility are examined.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 13 (1982)
Issue (Month): 1 (Spring)
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Web page: http://www.rje.org
Other versions of this item:
- Isaac, R. Mark., 1979. "Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices," Working Papers 273, California Institute of Technology, Division of the Humanities and Social Sciences.
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