In traditional, Power Industry is operated in vertical monopoly. Since the early 1980's, many countries have implemented electricity sector reforms. Many of these reforms have unbundled generation, transmission, distribution, and supply activities of the sector and introduced competition in generation and supply. An increasing number of countries are also adopting incentive regulation to promote efficiency improvement in the natural monopoly activities - transmission and distribution. This paper gives an introduction to incentive regulation, and analyses the experiences and lessons of price cap, which is one of methods of the theory of incentive regulation, applied widely in these reforms. According to the analysis, we design a hybrid scheme, which combines yardstick competition and benchmarking technique.
