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Rate Base Selection and the Structure of Regulation

Author

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  • Bruce C. Greenwald

Abstract

This article investigates the role played by rate base valuation rules in the context of rate of return regulation. It shows (1) that there is nothing inherently "fair" about any particular valuation rule, (2) that properly interpreted rate bases represent promises of future returns, (3) that valuation rules can be "fairly" selected from a very broad class, and (4) that, once this is recognized, rate of return regulation represents a highly effective and flexible means of avoiding the "dynamic consistency" problems associated with repeated regulatory reviews. In addition, the article investigates the nature of "optimal" rate base valuation rules.

Suggested Citation

  • Bruce C. Greenwald, 1984. "Rate Base Selection and the Structure of Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 85-95, Spring.
    • Handle: RePEc:rje:randje:v:15:y:1984:i:spring:p:85-95
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    Citations

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    Cited by:

    1. Kidokoro, Yukihiro, 1998. "Rate of return regulation and rate base valuation," Regional Science and Urban Economics, Elsevier, vol. 28(5), pages 629-654, September.
    2. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    3. Coggins, Jay S. & Smith, Vincent H., 1992. "Welfare Effects of Emission Allowance Trading in a Twice-Regulated Industry," Staff Papers 200554, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    4. Boyle, Glenn & Evans, Lewis & Guthrie, Graeme, 2006. "Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005," Working Paper Series 18939, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    5. repec:vuw:vuwscr:18946 is not listed on IDEAS
    6. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    7. Boyle, Glenn & Evans, Lewis & Guthrie, Graeme, 2006. "Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005," Working Paper Series 3844, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    8. repec:vuw:vuwscr:18939 is not listed on IDEAS
    9. Jean-Jacques Laffont, 2004. "Management of Public Utilities in China," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 185-210, November.
    10. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    11. Crawford, Garth, 2015. "Network depreciation and energy market disruption: Options to avoiding passing costs down the line," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 163-171.
    12. Biggar, Darryl, 2022. "Seven outstanding issues in energy network regulation," Energy Economics, Elsevier, vol. 115(C).
    13. William P. Rogerson, 1989. "Optimal Depreciation Schedules for Regulated Utilities," Discussion Papers 852, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.

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