Title: Price-index components for utility rate adjustments
Abstract: Continued high inflation rates have led to explicit planning for processes of rate adjustment that will recognize inflation and restore regulated utilities' incentives to innovate. One theory of incentive adjustment calls for using an input price index, a measure of the prices of the inputs to a company's production. But in a regulatory setting, an index produced by a company to adjust its own rates may not be sufficiently objective or it may remove cost-minimization incentives. This article examines how publicly produced economic series can be used to make a proxy for a given company-input price index. It suggests four criteria and, in an example case, a few proxies for the Bell telephone system inputs index are found which satisfy the criteria. They each combine a general price index with a price index for labor, using the proportion of labor in the Bell system inputs index. A simpler approach, the author notes, is to use a general price index. Because these are output price indexes, this would lead to a slight annual underrecovery for the example case. 8 references, 2 figures, 7 tables.
Publication Year: 1982
Publication Date: 1982-04-15
Language: en
Type: article
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