Why “Cost Plus” Is A Very Bad Thing™

Traditional power rate setting mechanisms are a very inefficient and expensive way to set electricity rates. These mechanisms can, and many times do, incentivize electric utilities to invest in the most expensive forms of power generation. This means that you and I pay way too much for electricity.

In Japan and many other countries/markets, electric utility rates are set through a “Cost Plus” system. As I wrote the other day, the Cost Plus system works like this:

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