Panel presentation: Should some type of incentive regulation replace traditional methods for regulating LDCs?

State regulators should consider new approaches to regulating LDCs. They should seriously look at different incentive systems, even if only as an experiment, to address the major inefficiencies they see plaguing LDCs. Regulators have become more receptive in recent years to applying different incentive systems for historically heavily regulated industries such as the telecommunications and electric industries. In view of prevailing conditions in the natural gas industry, there is no good reason why regulators should not be as receptive to applying incentive systems for LDCs. For gas services offered in competitive markets, regulators should ask themselves whether regulation is necessary any longer. For services still requiring regulation, regulators should explore whether changes in traditional regulation are needed. While some PUCs have undertaken new regulatory practices, the question before them today is whether they should do more; whether, for example, states should accelerate their efforts toward adopting more flexible pricing and other incentive-based regulations or toward considering deregulating selected services. PUCs have different options. They can choose from among a large number of incentive systems. Their choices should hinge upon what they view as major sources of inefficiencies. For example, if uneconomical bypass is perceived as a problem then different price rules might constitute the cornerstone of an incentive-based policy. On the other hand, if excessive purchased-gas costs seem to be a major problem, a PUC may want to consider abolishing the PGA or modifying it in a form that would eliminate the cost-plus component