ABSTRACT
‘Least-Cost Planning’, in Chapter 5, described the importance of forming electricity prices (and similarly for gas, water and so on) so that regulated utilities are rewarded for reducing customers' bills, not for selling them more of the commodity. This reform reflects a belated realisation that all regulation is incentive regula-tion; the only question is which kind of behaviour or result is being rewarded or penalised. Utilities, like other firms and individuals, are remarkably good at following the incentives they're given — however irrational. The relatively slow progress of saving electricity in most countries is clearly related to the continuing practice in some 46 of the United States, as virtually everywhere else in the world, of increasing utilities' profits when they sell more electricity and decreasing their profits when they sell less. Naturally most of them are not too enthusiastic about selling less. Some even have efficiency programmes (to help themselves look good to the regulators) but then more than undo them with even bigger efforts to increase electricity sales again!
