A study of the negotiated-settlement practice in regulation: Some evidence from Florida

• I study behavior during settlement negotiations in public utilities regulation.
• The consumer advocate's and public utilities firm's payoff functions are estimated.
• The reported rate change is more important to the advocate than future prices.
• The reported rate change is important to the firm as well.
• Saving time is not a primary reason for negotiated settlements between parties.

Negotiated settlements have become a frequently used alternative to contested proceedings when setting prices charged by public utilities under the US rate-of-return regulatory model. The behavior of the representatives of consumer advocates and the firms during settlement negotiations determine customer prices. This paper examines this behavior by using data from the Florida Public Service Commission to estimate the payoff functions of both parties. The estimation suggests that the advocate and the firm weight the present rate change more than the consumer's future average price and the firm's future operating revenue in their settlement decisions. It also indicates that the time saved by settlements is not a primary reason for their popularity.