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Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices

Isaac, R. Mark (1979) Fuel Cost Adjustment Mechanisms and the Regulated Utility Facing Uncertain Fuel Prices. Social Science Working Paper, 273. California Institute of Technology , Pasadena, CA. (Unpublished)

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ncreases 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.

Item Type:Report or Paper (Working Paper)
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Additional Information:My thanks to Professors Ronald Braeutigam, Stuart Burness, Roger Noll, and James Quirk for their encouragement and assistance. Of course, I am solely responsible for all remaining errors. Work on this paper was financed in part by a grant from the United States Department of Energy to the Caltech Environmental Quality Laboratory through the Caltech Energy Steering Committee. Published as Isaac, R. Mark. "Fuel cost adjustment mechanisms and the regulated utility facing uncertain fuel prices." The Bell Journal of Economics (1982): 158-169.
Group:Social Science Working Papers, Environmental Quality Laboratory
Funding AgencyGrant Number
Department of Energy (DOE)UNSPECIFIED
Environmental Quality LaboratoryUNSPECIFIED
Caltech Energy Steering CommitteeUNSPECIFIED
Subject Keywords:Fuels, Commercial regulation, Utilities costs, Price regulation, Utility rates, Economic capital, Economic regulation, Price level changes, Electric utilities, Economic costs
Series Name:Social Science Working Paper
Issue or Number:273
Record Number:CaltechAUTHORS:20171016-160303828
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82394
Deposited By: Jacquelyn Bussone
Deposited On:17 Oct 2017 23:23
Last Modified:03 Oct 2019 18:54

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