What MS/OR Groups Do: Analytical Tools for Economic Regulation of Energy Utilities

State public utility commissions (PUCs) regulate the nation's electric and gas utilities. These economic regulators set the prices and monitor the service quality for this important sector of the economy, and they require a different set of tools from those used by regulators of securities and of environmental, health, and safety effects. The main tools of utility commission regulation during its first century of existence were financial disclosure, accounting, and engineering depreciation studies. However, beginning around 1974 as energy prices soared, PUCs began to require more complex analytical tools for examining electric and gas utilities' performance, particularly tools for examining cost control.

I will discuss here four analytical tools developed at the National Regulatory Research Institute (NRRI) to assist PUCs with these four kinds of analyses. Each tool was developed by NRRI researchers, under my general direction, in response to an expressed commission need, and each represents a different analytical approach to utility regulation.