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Price Regulation for Independent Transmission Companies

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Author Info
Vogelsang, Ingo
Abstract

This paper considers methods of price structure regulation of electricity transmission in the context of an independent transmission company (TRANSCO). The focus is on two-part tariffs where the variable part would reflect congestion charges (and ancillary services) while the fixed part would reflect capacity costs. The two-part tariffs form a price-cap index, and the firm could rebalance prices, as long as the index satisfies the price-cap constraint. The firm would then have incentives to trade off congestion against capacity expansion in such a way that it becomes profitable to expand, whenever the costs of congestion on average exceed the costs of expansion. However, with chained Laspeyres weights in the price-cap index expansion may be suboptimal. We therefore discuss ways to improve the expansion factor. Implementing the regulatory schemes considered suggests a hybrid approach combining a TRANSCO with an independent system operator (ISO). Copyright 2001 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 20 (2001)
Issue (Month): 2 (September)
Pages: 141-65
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Handle: RePEc:kap:regeco:v:20:y:2001:i:2:p:141-65

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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," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
    Other versions:
  3. Isamu Matsukawa, 2005. "The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing," Industrial Organization 0512009, EconWPA. [Downloadable!]
    Other versions:
  4. Littlechild, S.C. & Skerk, C.J., 2004. "Regulation of transmission expansion in Argentina Part I: State ownership, reform and the Fourth Line," Cambridge Working Papers in Economics 0464, Faculty of Economics, University of Cambridge. [Downloadable!]
  5. Juan Pablo Montero & Salvador Valdés, 2003. "Notas para la Regulación Eficiente de la Transmisión Eléctrica," Documentos de Trabajo 242, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
    Other versions:
  6. Ingo Vogelsang, 2005. "Electricity Transmission Pricing and Performance-Based Regulation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics 0463, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  8. Makoto TANAKA, 2005. "Optimal Transmission Capacity under Nodal Pricing and Incentive Regulation for Transco," Discussion papers 05021, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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