Competitive regulation: A new view of an old idea

For each of the past five years, the average electric residential rate for investor-owned utilities has increased less than the Consumer Price Index (CPI). This is in contrast to the previous five years when residential rates increased more than the CPI. This is not only good news for ratepayers, but it might indicate a continuing rate stability for many electric utilities. While the electric industry is still an increasing cost industry on a nominal basis, many utilities have limited need for new generation, which will, in turn, moderate future rate increase needs. This article examines the fundamental principles and applications of regulatory policies. Current real price decreases provide an opportunity for regulators and electric utilities to change the regulatory framework to encourage policies that stimulate innovation and effective management.