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Electricity Transmission Pricing and Performance-based Regulation

  • Ingo Vogelsang

Performance-based regulation (PBR) is influenced by the Bayesian and non-Bayesian incentive mechanisms. While Bayesian incentives are impractical for direct implementation, the insights from their properties can be combined with practical non-Bayesian mechanisms for application to transmission pricing. This combination suggests an approach based on the distinction between ultra-short, short and long periods. Ultra-short periods are marked by real-time pricing of point-to-point transmission services. Pricing in short periods involves fixed fees and adjustments via price-cap formulas or profit sharing. Productivity-enhancing incentives have to be tempered by long-term commitment considerations, so that profit sharing may dominate pure price caps. Investment incentives require long-term adjustments based on rate-of-return regulation with a Òused and usefulÓ criterion.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 27 (2006)
Issue (Month): Number 4 ()
Pages: 97-126

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Handle: RePEc:aen:journl:2006v27-04-a05
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