Settling Utility Rate Cases: An Alternative Ratemaking Procedure

Zhongmin Wang ()

Journal of Regulatory Economics, 2004, vol. 26, issue 2, 163 pages

Abstract: The U.S. Federal Energy Regulatory Commission (FERC) has long relied on settlement procedures to resolve its cases, and since the mid-1980s many state regulatory commissions have also adopted this utility ratemaking procedure. This paper examines the settlement practice at FERC to show that the flexibility of the settlement process could lead to settlement outcomes that Pareto dominate the litigation outcome. Negotiated settlements improve welfare because the players can make tradeoffs across the issues during the settlement negotiations. Rate moratorium, for example, arises endogenously as a settlement provision in about half of the major interstate natural gas pipeline rate cases.

Date: 2004
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