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Fuel cost adjustment mechanisms and the regulated utility facing uncertain fuel prices

Isaac, R. Mark (1982) Fuel cost adjustment mechanisms and the regulated utility facing uncertain fuel prices. Bell Journal of Economics, 13 (1). pp. 158-169. ISSN 0361-915X. doi:10.2307/3003437.

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Increases 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.

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Additional Information:© 1982 RAND Corporation. The original version of this article was written while I was a graduate student at the California Institute of Technology. My thanks are due to Professors Ronald Braeutigam, Stuart Burness, Roger Noll, and James Quirk and to an anonymous referee for their encouragement and assistance. Of course, I am solely responsible for all remaining errors. Work on this article was financed in part by a grant from the United States Department of Energy the Caltech Environmental Quality Laboratory through the Caltech Energy Steering Committee. Formerly SSWP 273.
Group: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 regulation, Price level changes, Electric utilities, Economic costs, Common carriers
Issue or Number:1
Record Number:CaltechAUTHORS:20171120-153341250
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83363
Deposited By: Jacquelyn Bussone
Deposited On:20 Nov 2017 23:42
Last Modified:15 Nov 2021 19:57

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