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The Effect of a Fuel Adjustment Clause on a Regulated Firm's Selection of Inputs

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  • Frank A. Scott Jr.

Abstract

When input prices are changing rapidly, the delays inherent in rate-of-return regulation can result in rate decisions that are outdated before they can be implemented. Many regulatory commissions have adopted fuel adjustment clauses to remedy this problem. Fuel clauses adjust output price for changes in fuel costs so that the utility's profit remains relatively unaffected. Fuel adjustment clauses are now used in almost all the 50 states and the District of Columbia; a survey by the National Association of Regulatory Utility Commissioners (NARUC) (1978, p. 6) revealed that only 7 states did not permit fuel clauses.

Suggested Citation

  • Frank A. Scott Jr., 1985. "The Effect of a Fuel Adjustment Clause on a Regulated Firm's Selection of Inputs," The Energy Journal, , vol. 6(2), pages 117-126, April.
    • Handle: RePEc:sae:enejou:v:6:y:1985:i:2:p:117-126
    DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No2-9
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    References listed on IDEAS

    as
    1. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    2. R. Mark Isaac, 1982. "Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 158-169, Spring.
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