𝔖 Bobbio Scriptorium
✦   LIBER   ✦

The pricing of capital services under regulation

✍ Scribed by Anna P. Della Valle; G.Campbell Watkins

Publisher
Elsevier Science
Year
1992
Tongue
English
Weight
735 KB
Volume
2
Category
Article
ISSN
0957-1787

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✦ Synopsis

This paper discusses the pricing of services for long-lived capital-intensive energy projects. Its purpose is to offer alternatives to rate structures associated with traditional accounting methods and rate-of-return regulation. These result in front-end loading of costs, leading to inefficiencies and discouraging development. Several alternative rate structures are proposed to mitigate inefficiencies. Theory suggests an 'optimal annual charge' for capital equipment to reflect the annual economic value of capacity. Zmplementation of optimal charges may involve major changes in accounting methods and the use of innovative financial instruments. From a practical standpoint, a phasing-in procedure may be desirable.

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