|
Under conventional "rate of return" regulation, rates of
regulated network service providers are reviewed on a regular basis
and have to be adjusted to lower levels if cost savings have been
achieved in the interim. Network service providers thus only
benefit from cost savings to the extent that regulatory reaction to
cost savings is lagged.
If the regulatory lag is short - one or two years - incentives
for cost savings are suppressed almost completely and network
service providers operate dynamically inefficiently.
Numerous regulatory methodologies have been developed to
counteract the deficiencies of "rate of return" regulation to
differing extents. All these alternative methodologies focus on the
establishment of incentive mechanisms by moving from "rate of
return" to "profit sharing" or further to "cap" regulation, all the
way to the application of comparative approaches such as
"yardstick" regulation.
KEMA advises utilities and regulators on conceptual development,
quantitative modeling and practical implementation of price control
strategies, including:- Establishment of revenue requirements,
- Design of regulatory formulas and incentive schemes, and
- Efficiency assessment studies, including
benchmarking.
|
|
|
|
|
|
|
|
