Negotiated Settlements: Long-term Profits and Costs

Over the last 20 years, utility regulators have relaxed their oversight of cost-ofservice regulation and this holds true for Alberta, where such regulation determines the fees associated with oil and gas pipeline usage. The traditional method has been for regulators to issue binding decisions on a f...

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Main Author: G. Kent Fellows
Format: Article
Language:English
Published: University of Calgary 2012-05-01
Series:The School of Public Policy Publications
Online Access:http://www.policyschool.ca/wp-content/uploads/2016/03/g-kent-may012-3.pdf
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author G. Kent Fellows
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author_sort G. Kent Fellows
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description Over the last 20 years, utility regulators have relaxed their oversight of cost-ofservice regulation and this holds true for Alberta, where such regulation determines the fees associated with oil and gas pipeline usage. The traditional method has been for regulators to issue binding decisions on a firm’s cost of service after taking evidence at a formal hearing. Many regulators now prefer to encourage parties to settle a cost-of-service agreement through a negotiated settlement, which the regulator then approves. This process not only saves the cost of a hearing, it also permits firms and consumers to trade costs and benefits, settling on a final price more favourable to both. The author details how this arrangement can negatively impact future consumers by allowing the firm to defer the true burden of its depreciation expenses in return for inflated capital costs. Such a settlement lowers prices for the present but saddles future consumers with higher prices.
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spelling doaj.art-b95d3d9f15074796b4f11e8b7e63d3242022-12-22T02:03:33ZengUniversity of CalgaryThe School of Public Policy Publications2560-83122560-83202012-05-01515110https://doi.org/10.11575/sppp.v5i0.42384Negotiated Settlements: Long-term Profits and CostsG. Kent Fellows0University of CalgaryOver the last 20 years, utility regulators have relaxed their oversight of cost-ofservice regulation and this holds true for Alberta, where such regulation determines the fees associated with oil and gas pipeline usage. The traditional method has been for regulators to issue binding decisions on a firm’s cost of service after taking evidence at a formal hearing. Many regulators now prefer to encourage parties to settle a cost-of-service agreement through a negotiated settlement, which the regulator then approves. This process not only saves the cost of a hearing, it also permits firms and consumers to trade costs and benefits, settling on a final price more favourable to both. The author details how this arrangement can negatively impact future consumers by allowing the firm to defer the true burden of its depreciation expenses in return for inflated capital costs. Such a settlement lowers prices for the present but saddles future consumers with higher prices.http://www.policyschool.ca/wp-content/uploads/2016/03/g-kent-may012-3.pdf
spellingShingle G. Kent Fellows
Negotiated Settlements: Long-term Profits and Costs
The School of Public Policy Publications
title Negotiated Settlements: Long-term Profits and Costs
title_full Negotiated Settlements: Long-term Profits and Costs
title_fullStr Negotiated Settlements: Long-term Profits and Costs
title_full_unstemmed Negotiated Settlements: Long-term Profits and Costs
title_short Negotiated Settlements: Long-term Profits and Costs
title_sort negotiated settlements long term profits and costs
url http://www.policyschool.ca/wp-content/uploads/2016/03/g-kent-may012-3.pdf
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