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On Distributive Effects of Optimal Regulation for Power Grid Expansion

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  • Luis Ángel Herrera
  • Juan Rosellón

Abstract

To date, the distributive implications of incentive regulation on electricity transmission networks have not been explicitly studied in the literature. More specifically, the parameters that a regulator might use to achieve distributive efficiency under price-cap regulation have not yet been identified. To discern these parameters is the motivation for the research presented in this paper. We study how different weight parameters affect the distributive characteristics of optimal price-cap incentive regulation for electricity transmission. We find that a regulator's use of ideal (Laspeyres) weights tends to be more beneficial for the Transco (consumers) than for consumers (the Transco).

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.427952.de/dp1327.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1327.

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Length: 34 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwwpp:dp1327

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Keywords: Electricity transmission; incentive regulation; distributive efficiency;

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  1. Rosellón, Juan & Vogelsang, Ingo & Weigt, Hannes, 2009. "Long-run Cost Functions for Electricity Transmission," MPRA Paper 22842, University Library of Munich, Germany.
  2. Rosellon, Juan & Weigt, Hannes, 2008. "A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks – Theory, Modeling and Application," MPRA Paper 22843, University Library of Munich, Germany.
  3. Bertoletti, Paolo & Poletti, Clara, 1997. "Welfare effects of discriminatory two-part tariffs constrained by price caps," Economics Letters, Elsevier, vol. 56(3), pages 293-298, November.
  4. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  5. David Sibley, 1989. "Asymmetric Information, Incentives and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 392-404, Autumn.
  6. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  7. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
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