Cost-of-service regulation occurs when prices are regulated based on costs that are passed on to customers, which reduces the incentive to keep costs down.

Name: Cost-of-service regulation occurs when prices are regulated based on costs that are passed on to customers, which reduces the incentive to keep costs down.
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Question

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Cost-of-service regulation allows utilities to set prices based on their costs, which means that they may not have an incentive to decrease costs and may pass on higher costs to customers.

Cost-Of-Service Regulation Occurs When Prices Are Regulated Based on Costs