Glossary (Body of Knowledge on Infrastructure Regulation)

Rate of return regulation:: A regulatory method that provides the utility with the opportunity to recover prudently incurred costs, including a fair return on investment. Revenue requirements equal Operating Costs plus the allowed rate of return times the rate base. This mechanism limits the profit (and loss) a company can earn on its investment. Regulatory lag and special incentive plans are often used to offset the disincentive to minimize costs under this mechanism. See cost of service regulation.

Interactive Glossary