Measuring the price impact of price-cap regulation among Canadian electricity distribution utilities

Price-cap regulation is a form of performance-based ratemaking that offers electric distribution utilities a fundamental alternative to traditional rate-of-return regulation. Economic theory suggests that price caps, which set annual rate changes based on industry-wide productivity, should incentivize improved performance within the regulated utility. This analysis tests that theory by comparing rate outcomes among a control group of firms regulated under the traditional rate-of-return method against rate outcomes under price caps in Alberta and Ontario across time. The findings suggest a downward effect on the annual escalation of customer rates under price-cap regulation.