Economic Issues Related to Tariff Development

The objective of price regulation is to insert an administratively determined method of pricing a product for an industry where prices determined by the market will provide an economically inefficient and socially unacceptable outcome. These markets are uncompetitive and will not lead to a socially desirable allocation of resources when left to their own devices. Therefore, the development of tariffs is one of the most critical activities in the regulatory function.

The Energy Regulators Regional Association (ERRA) has retained Pierce Atwood to prepare an issue paper addressing electric power regulation. The principal objective of this paper is to provide a concise guiding document concerning tariff setting methodologies for ERRA members and staff.