Price Cap Regulation: Problems and Solutions

Robert Loube

Land Economics, 1995, vol. 71, issue 3, 286-298

Abstract: The problems of price cap regulation include: the transformation from rate-of-return regulation, the adoption of a price cap formula, cross-subsidization, and the relationship between regulation and competition. The experience of price cap regulation reveals that it does not protect monopoly customers, and it allows utilities to engage in cross-subsidization. These results imply that the regulator must periodically review price cap results to realign prices with the cost of service and to ensure that a level playing field that would nurture competition develops in every market.

Date: 1995
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