Price Cap Regulation


DEFINITION of 'Price Cap Regulation'

A form of economic regulation generally specific to the utility industry in the United Kingdom. Price cap regulation sets a cap on the price that the utility provider can charge. The cap is set according to several economic factors, such as the price cap index, expected efficiency savings and inflation.

BREAKING DOWN 'Price Cap Regulation'

After the rising costs of inputs (inflation) and the prices charged by competitors are considered, price cap regulation is introduced to protect the consumers while ensuring that the business can remain profitable.

Price cap regulation stands in contrast to rate of return regulation and revenue cap regulation, other forms of price and profit controls used in the United Kingdom. All private British utility networks are now required to adhere to price cap regulation.

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