Implementing a Price Level Regime for Diversified Public Utilities

The decisional elements and processes in determining prices under profit and price level regulation differ significantly. Under profit level regulation the (indirect) price decision is largely a product of regulatory discretion in reducing a welter of competing variables and interests into a politically acceptable decision that projects a sufficient aura of rationality. To these ends the opportunities for obscured tradeoffs are legion. If the desired result requires a rate of return that seems too high or too low, then the same result can be reached by use of a different rate of return with compensating adjustments in operating costs or the rate base. If the rate base is the sensitive issue, then a more satisfying or less vulnerable result can be achieved through adjustments in the rate of return. Similarly, the impact of economically improvident decisions on the allowance or disallowance of controversial operating costs can be eased through adjustments in the rate base or rate of return. Where the result proves unpalatable the parties can return to the regulatory drawing board.