“Night of the Living Dead” or “Back to the Future”? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency
AbstractThe distribution grid for delivering electricity to the user has been paid for as part of the charge per kilowatt-hour that covers the cost of the energy itself. Conservation advocates have promoted the adoption of policies that “decouple” electric distribution company revenues or profits from how much electricity goes through the lines. Their motivation is that usage-based pricing leads utilities to encourage use and discourages conservation. Because decoupling divorces profits from conduct, it runs against the dominant finding in regulatory economics in the last twenty years -— that incentive-based regulation outperforms rate-of-return. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort utility incentives to inform consumers about energy efficiency -— getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. Justifying policies to subsidize energy efficiency requires either prices that are too low or consumers who are ignorant.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-08-27.
Date of creation: 15 Aug 2008
Date of revision:
decoupling; price caps; electricity; energy efficiency; conservation;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-ENE-2008-10-07 (Energy Economics)
- NEP-MIC-2008-10-07 (Microeconomics)
- NEP-REG-2008-10-07 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-37, May.
- Brennan, Timothy J & Boyd, James, 1997.
"Stranded Costs, Takings, and the Law and Economics of Implicit Constracts,"
Journal of Regulatory Economics,
Springer, vol. 11(1), pages 41-54, January.
- Brennan, Timothy & Boyd, James, 1996. "Stranded Costs, Takings, and the Law and Economics of Implicit Contracts," Discussion Papers dp-97-02, Resources For the Future.
- Timothy J. Brennan & James Boyd, 2006. "Political Economy And The Efficiency Of Compensation For Takings," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 188-202, 01.
- anonymous, 1982. "Communication," Management Science, INFORMS, vol. 28(3), pages 337-337, March.
- anonymous, 1982. "Communication," Management Science, INFORMS, vol. 28(11), pages 1350-1351, November.
- anonymous, 1982. "Communications," Management Science, INFORMS, vol. 28(12), pages 1471-1475, December.
- Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
- Griffin, James M, 1982. "The Welfare Implications of Externalities and Price Elasticities for Telecommunications Pricing," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 59-66, February.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.