Open Access Journal Article

A Decision-Making Framework for Assessing New Rate Mechanisms: The Case of US Gas Distributors

by Kenneth W. Costello a,* orcid
a
Regulatory economist/independent consultant, the National Regulatory Research Institute, USA
*
Author to whom correspondence should be addressed.
JEA  2023, 32; 2(3), 32; https://doi.org/10.58567/jea02030003
Received: 16 February 2023 / Accepted: 9 May 2023 / Published Online: 12 May 2023
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Abstract

To make an assessment of ratemaking proposals, this article proposes that regulators should consider applying a logical decision-making process, such as multi-criteria decision analysis (MCDA), that selects or modifies those rate mechanisms that come closest to achieving the public interest, as defined by regulators. MCDA seems like an fitting tool to improve regulatory decisions by making more explicit the relationship between different rate mechanisms and the public interest. This article provides a simplified version of MCDA to demonstrate how regulators can apply this tool to evaluate new rate mechanisms in terms of the public interest. As far as the author knows, the MCDA methodology applied to utility ratemaking has not appeared in the literature. While regulators may not want to or lack the resources to execute all the steps presented in this article, MCDA can provide direction to regulators in evaluating different rate mechanisms and ultimately reaching decisions that are more rational and aligned with the public interest. After all, evaluating rate mechanisms is one of the major functions of utility regulators. Doing it wrongly can have a consequential effect on society’s welfare.

Keywords: Multi-criteria decision analysis; traditional ratemaking; new rate mechanisms; public interest; alternative decision strategies;
Copyright: © 2023 by W. Costello. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
W. Costello, K. A Decision-Making Framework for Assessing New Rate Mechanisms: The Case of US Gas Distributors. Journal of Economic Analysis, 2023, 2, 32. https://doi.org/10.58567/jea02030003
AMA Style
W. Costello K. A Decision-Making Framework for Assessing New Rate Mechanisms: The Case of US Gas Distributors. Journal of Economic Analysis; 2023, 2(3):32. https://doi.org/10.58567/jea02030003
Chicago/Turabian Style
W. Costello, Kenneth 2023. "A Decision-Making Framework for Assessing New Rate Mechanisms: The Case of US Gas Distributors" Journal of Economic Analysis 2, no.3:32. https://doi.org/10.58567/jea02030003
APA style
W. Costello, K. (2023). A Decision-Making Framework for Assessing New Rate Mechanisms: The Case of US Gas Distributors. Journal of Economic Analysis, 2(3), 32. https://doi.org/10.58567/jea02030003

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