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The effects of average revenue regulation on electricity transmission investment and pricing

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Author Info
Matsukawa, Isamu

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Abstract

This paper investigates the long-run effects of average revenue regulation on an electricity transmission monopolist who applies a two-part tariff comprising a variable congestion price and a non-negative fixed access fee. A binding constraint on the monopolist's expected average revenue lowers the access fee, promotes transmission investment, and improves consumer surplus. In a case of any linear or log-linear electricity demand function with a positive probability that no congestion occurs, average revenue regulation is allocatively more efficient than a Coasian two-part tariff if the level of capacity under average revenue regulation is higher than that under a Coasian two-part tariff.

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Publisher Info
Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 3 (May)
Pages: 696-714
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Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:696-714

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  1. isamu matsukawa, 2005. "Congestion pricing of inputs in vertically related markets," Industrial Organization 0506012, EconWPA. [Downloadable!]
  2. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Boyce, John R. & Hollis, Aidan, 2005. "Governance of electricity transmission systems," Energy Economics, Elsevier, vol. 27(2), pages 237-255, March. [Downloadable!] (restricted)
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  4. Hogendorn, Christiaan, 2003. "Collusive Long-Run Investments under Transmission Price-Caps," Journal of Regulatory Economics, Springer, vol. 24(3), pages 271-91, November. [Downloadable!] (restricted)
  5. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
  6. Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September. [Downloadable!] (restricted)
  7. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  8. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September. [Downloadable!] (restricted)
  9. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  10. Michael A. Crew & Paul R. Kleindorfer, 1976. "Peak Load Pricing with a Diverse Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 207-231, Spring. [Downloadable!] (restricted)
  11. Cowan, Simon G B, 1997. "Tight Average Revenue Regulation Can Be Worse Than No Regulation," Journal of Industrial Economics, Blackwell Publishing, vol. 45(1), pages 75-88, March. [Downloadable!] (restricted)
  12. Jean-Daniel Saphores & Eric Gravel & Jean-Thomas Bernard, 2004. "Regulation and Investment under Uncertainty: An Application to Power Grid Interconnection," Journal of Regulatory Economics, Springer, vol. 25(2), pages 169-186, 03. [Downloadable!]
  13. Deng, Shi-Jie & Oren, Shmuel S, 2001. "Priority Network Access Pricing for Electric Power," Journal of Regulatory Economics, Springer, vol. 19(3), pages 239-70, July. [Downloadable!] (restricted)
  14. Einhorn, Michael A, 1990. "Electricity Wheeling and Incentive Regulation," Journal of Regulatory Economics, Springer, vol. 2(2), pages 173-89, June.
  15. Baldick, Ross & Kahn, Edward, 1993. "Network Costs and the Regulation of Wholesale Competition in Electric Power," Journal of Regulatory Economics, Springer, vol. 5(4), pages 367-84, December.
  16. Mark Armstrong & John Vickers, 1991. "Welfare Effects of Price Discrimination by a Regulated Monopolist," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 571-581, Winter. [Downloadable!] (restricted)
  17. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October. [Downloadable!] (restricted)
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