Integrating social responsibility considerations into PCR model: an application of China's electricity price regulation

Price cap regulation (PCR) has experienced widespread adoption in some countries' electricity sector. In current China's electric power transmission-distribution price reform, the cost plus revenue regulation model has been adopted for the supervision over electric power transmission-distribution price, and such model has certain incentive function, so China is at a transition period from traditional regulation to incentive regulation. Price cap regulation is a widely used incentive regulation model. Considering that China's electric power grid enterprises undertake huge social responsibility, it is necessary to reform the traditional price cap model in order to compensate the large amount of cost contributed by enterprises for performing their social responsibility, which has great significance to the sustainable development of the society and electric power enterprises. This paper studies the price cap regulation features and its application, discusses China's electric power transmission-distribution regulation models, and finally proposes suggestions on the reform to traditional price cap regulation model based on the consideration on the social responsibility factor.