Sep 9, 2012 reliance on volumetric (kWh-based) rate designs to recover fixed costs rate-of- return method of regulation has weathered many storms and The standard rate formula sets rates based on a utility's reasonable expenses and PBR regulations are a continuum, from simple modifications of rate of return Performance-Based Regulation in a High Distributed Energy Resources Future ( January Ratebase/rate-of-return regulation provides powerful incentives for Impact of independent regulation in the EU energy industry. ▻ From the Cost- based regulation (e.g. rate of return): regulators set the price so as to cover all prespecified conditions such as an extremely high or low rate of return on equity. Performance-Based Regulation (PBR): An approach to regulation designed to Aug 11, 2015 New customer programs, utility business models and regulations are Utility revenues are still based on an authorized rate of return, with example is based on a number of simplifying assumptions.3. These simplifications In the case of price regulation, the value of the return on capital is typically
An alternative is price-cap regulation, by which ceilings (“caps”), based on indices of price and technological change are imposed, below which the regulated firm
The rates of return allowed by public utility commissions varies, but a return on the rate base of 8% to 10% per year is a good representative figure. ‹ Electricity Industry Structure and Regulation up Economic Dispatch and Operations of Electric Utilities › Rate of return regulation adjusts overall price levels according to the operator’s accounting costs and cost of capital. In most cases, the regulator reviews the operator’s overall price level in response to a claim by the operator that the rate of return that it is receiving is less than its cost of Rate of return regulation is a form of price setting regulation where governments determine the fair price which is allowed to be charged by a monopoly. Rate-of-return regulation has been criticized for providing inappropriate incentives to regulated firms and for being costly to administer. An alternative is price-cap regulation, by which ceilings (“caps”), based on indices of price and technological change are imposed, below which the regulated firm has full pricing freedom. rr = Rate of return allowed by regulators (V-D) = Rate base, this is the current book value of assets and the un-recovered part of depreciable assets and other amortized capital. The formula gives the utility little incentive to reduce operating costs as these are passed through allowing full recovery. RATE BASE, RATE-OF-RETURN REGULATION OVERVIEW. 2 PURPOSE OF REGULATION Public Ownership Competitive Rate Regulation Market based versus Flat Rates) n Price Elasticity n Subsidization n Affordability n Price Signals. 8 BASIC REGULATORY CONCEPTS n Public Interest n In the eye of the beholder Price Caps, Rate-of-Return Regulation, and the Cost of Capital the regulator naturally takes into account the regulated utility’s rate of return. If it is high, the price cap is likely to be reduced; if it is low, the price cap may be relaxed. But as long as price cap reviews are sufficiently infrequent (say, every five years), price cap and
Rate of return; Revenue cap; Price cap; Outputs & incentives. Initially, network price regulation was derived from input-based schemes such as cost-plus and
Rate of return regulation is a form of price setting regulation where governments determine the fair price which is allowed to be charged by a monopoly.