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The Impact of Agency Costs on Regulator Compensation and the Size of Electric Utility Commissions

The current study examines the impact of the selection of electric utilities regulators on their compensation and the size of the regulatory commissions they lead. Much like the CEOs of regulated enterprises, managers of politically supported enterprises and bureaucracies might be expected to pursue increases in the size of administration budgets, the number of support staff and compensation packages (i.e., engage in expense preference behavior). In the case of public utility commissions, the principal-agent model used to describe private firms applies. However, within politically-appointed regulatory regimes, utilities commissioners are the agents of politicians instead of the population at large. In elected regimes, regulators are the agents of the population at large. Statistical models presented in this paper point toward greater levels of expense preference behavior (or expected utility maximization) by commissions(ers) within appointed regulatory regimes, as public choice models and models of the firm would suggest.

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Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes: L94: Electric Utilities, L98: Industry Studies: Utilities and Transportation: Government Policy, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, L51: Economics of Regulation, Q42: Alternative Energy Sources, C51: Model Construction and Estimation

Keywords: Electricity industry, electric utility commissions, regulation, regulator compensation

DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No2-2

Published in Volume22, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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