FUEL ADJUSTMENT MECHANISMS AND ECONOMIC-EFFICIENCY

Fuel adjustment mechanisms used in electricity and natura gas pricing are formulae that provide for automatic adjustments in output prices in response to changes in the factor prices of boiler fuels and wellhead gas, respectively. Because these adjustments are made automatically, regulatory commissions do not exercise direct review of the appropiateness of the adjustments although they do generally have authority to determine the form of the formulae us. Thepurpose of tis paper iso investigate the implications of these mechanisms for economic efficiency, and the analysis will focus on fuel adjustment clauses for electricity rates, since tey have been the subject of the most concern in the US. -from Authors