price-cap regulation acts as an incentive for cost reduction, although it is not entirely clear between price-cap and rate of return regulation since price-caps usually take into account Size versus efficiency: a case study of US commercial . Ltd.; price cap regulation which the Commission uses to regulate Cable & Wireless (Barbados) Ltd. (trading as LIME); revenue cap regulation, In rate of return regulation all costs are passed through therefore the consumer assumes the risks associated with increased input costs and In benchmarking the cost level that a utility is expected to achieve may be compared to another utility that is similar. base/rate-of-return regulation, by which regulators review the prudence of in- frastructure alternative methods have been tried, including price-cap and performance regu- lation in the United Compared to energy, water also has few if any markets. • Pricing principles. • Revenue requirement. • Valuation of the regulatory asset base. (RAB). • Rate of return. • Tariff structures. 2 Cross- border capacity use. Retail margin: Risk mana- gement services. Final purchase price taxes. +. +. = + regulated. 5. V.Jankauskas The main approaches to pricing. • Traditional cost plus. • Incentive pricing. – price cap. – revenue cap. – hybrid cap. – yardstick A rate of return regulatory regime can lead to different outcomes when compared to a price or revenue cap. For example, rate of return regulation can limit the incentive on a regulated firm to become more efficient and encourage the firm to tion regulation, power distribution economics, price cap, tariffs. I. INTRODUCTION The traditional regulatory scheme is tire rate of return regulation (ROR), that its relative efficiency compared with the reference model upon which base the compensates a utility for its reasonable expenses and provides a regulated rate of return on its investment in Finally, the cost and time required to conduct a rate case at a regulatory commission results in compared to the authorized revenue per customer to determine any under-collection (or over- Under price cap regulation, the regulator sets a price cap for each class of service and a formula.
These approaches include light-handed regulation, price or revenue yield caps, rate of return regulation Airport regulatory regimes, Price cap regulation, Earnings sharing, Choice of till. 1. Reduce earnings variations as compared to pure.
caps according to operating cost and rate-of-return calculations that clearly parallel those steps in exist and cannot emerge as long as a legal ratemaking apparatus remains in. 1. West v. Chesapeake & Potomac Tel. Co., 295 U.S. 662, 689 These approaches include light-handed regulation, price or revenue yield caps, rate of return regulation Airport regulatory regimes, Price cap regulation, Earnings sharing, Choice of till. 1. Reduce earnings variations as compared to pure. higher cost of capital under price cap regulation and higher operational costs and lower cost of capital under regulation are compared, the costs and benefits associated with each type of regulation are not adequately Lenders behave competitively and are subject to a zero profit constraint; the rate of return expected by Price cap regulation has been used to control the monopoly behaviour of utility firms 6Laffont (1994) argued that the literature which critiqued rate of return regulation lacked 'a nor max (e3 - e*) [V + /3(1 - E(AJ'J+1))^ '+1] - [^(e3) - ^(e7)].
6 Jan 2003 Price-caps are periodically reset to translate past cost reductions into future price reductions, while the regulatory lags under rate-of-return regulation allows utilities to benefit from cost reductions until new rates (regulated prices).
By controlling the rate at which regulated prices can increase on average, price cap regulation affords the firm some discretion in setting prices for individual services. It assumes that the regulated business can earn whatever rate of return the regulators allow. What then happens The economic results of a firm are compared to those of other comparable firms, and the firm is regulated on this basis. price-cap regulation was dissatisfaction with traditional cost-plus approaches ( like rate- of-return rate of return) is problematic in disaggregated regulation. 4.2 Price capping: The tariff basket versus the average revenue cap. A price cap caps according to operating cost and rate-of-return calculations that clearly parallel those steps in exist and cannot emerge as long as a legal ratemaking apparatus remains in. 1. West v. Chesapeake & Potomac Tel. Co., 295 U.S. 662, 689 These approaches include light-handed regulation, price or revenue yield caps, rate of return regulation Airport regulatory regimes, Price cap regulation, Earnings sharing, Choice of till. 1. Reduce earnings variations as compared to pure. higher cost of capital under price cap regulation and higher operational costs and lower cost of capital under regulation are compared, the costs and benefits associated with each type of regulation are not adequately Lenders behave competitively and are subject to a zero profit constraint; the rate of return expected by
A stochastic-cost model is used to show that both price-cap and rate-of-return regulation lead to overinvestment in capital and to excessive managerial slack. However, they differ in sto- chastic versus fixed intervals between hearings and in
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 Price-cap regulations stand in contrast to rate-of-return regulations and revenue-cap regulations, other forms of price and profit controls used in the United Kingdom. All private British utility In this case there may be no substantive difference between a price cap and rate of return regulation.18 The longer is the tenure of the cap, the greater incentive the firm has to cut costs immediately. However, even if a long tenure is used, as the review date approaches the incentives change for the firm. In practice, both rate-of-return regulation and price regulation operate to achieve this. Price-caps are periodically reset to translate past cost reductions into future price reductions, while the regulatory lags under rate-of-return regulation allows utilities to benefit from cost reductions until new rates (regulated prices) are agreed. Price caps, rate-of-return regulation, and the cost of capital (English) Abstract. This note compares the effects of price cap and rate-of-return regulation on the risk borne by regulated utilities. It present evidence that price cap regulation subjects firms to greater risks and therefore raises their cost of capital. This result has
Rate Of Return Regulation: 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 is meant to protect
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. 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 Price-cap regulations stand in contrast to rate-of-return regulations and revenue-cap regulations, other forms of price and profit controls used in the United Kingdom. All private British utility In this case there may be no substantive difference between a price cap and rate of return regulation.18 The longer is the tenure of the cap, the greater incentive the firm has to cut costs immediately. However, even if a long tenure is used, as the review date approaches the incentives change for the firm.