After-the-Fact Regulatory Review: Balancing Competing Concerns

Abstract

In their article, Blackmon and Zeckhauser (B&Z) describe the problems associated with fragile regulatory commitments and their effect on utility investment. When utilities invest in capital-intensive plants which have long lead-times and little alternative use, these investments become sunk: utilities will leave them in place as long as recovery of their relatively low marginal operating costs is possible. Under certain conditions, this provides pro-consumer regulators with the opportunity to appropriate the benefits associated with the utility's investment for consumers.