IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v48y2015icp139-149.html
   My bibliography  Save this article

Efficient tariff structures for distribution network services

Author

Listed:
  • Brown, Toby
  • Faruqui, Ahmad
  • Grausz, Léa

Abstract

This paper reviews different methods for ensuring economic efficiency when devising tariffs for distribution network services while meeting the revenue constraint.11For further discussions about different regulatory frameworks in regulating network tariffs, the reader can refer to Nepal et al. (2014). There is a long tradition in welfare economics which suggests that prices should be based on long run marginal costs to achieve economic efficiency. However, network revenue requirements are often based on embedded costs, which are typically higher than long run marginal costs. This creates the problem of recovering residual costs. There are several methods available for doing so. Of course, economic efficiency is not the only criterion for designing tariffs. Fairness and gradualism are two other criteria that play heavily in the design of electricity tariffs. By drawing upon representative data from Australia, we illustrate the various methods and evaluate their likely performance on these criteria.

Suggested Citation

  • Brown, Toby & Faruqui, Ahmad & Grausz, Léa, 2015. "Efficient tariff structures for distribution network services," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 139-149.
  • Handle: RePEc:eee:ecanpo:v:48:y:2015:i:c:p:139-149
    DOI: 10.1016/j.eap.2015.11.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592615300552
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.eap.2015.11.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nepal, Rabindra & Menezes, Flavio & Jamasb, Tooraj, 2014. "Network regulation and regulatory institutional reform: Revisiting the case of Australia," Energy Policy, Elsevier, vol. 73(C), pages 259-268.
    2. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008.
    3. Joskow, Paul L., 2007. "Regulation of Natural Monopoly," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 16, pages 1227-1348, Elsevier.
    4. Turvey, R, 1969. "Marginal Cost," Economic Journal, Royal Economic Society, vol. 79(314), pages 282-299, June.
    5. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    6. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-248, November.
    7. Ralph Turvey, 1968. "Peak-Load Pricing," Journal of Political Economy, University of Chicago Press, vol. 76, pages 101-101.
    8. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
    9. Ron Baiman, 2001. "Why equity cannot be separated from efficiency: the welfare economics of progressive social pricing," Review of Radical Political Economics, Union for Radical Political Economics, vol. 33(2), pages 203-221, June.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Batlle, Carlos & Mastropietro, Paolo & Rodilla, Pablo, 2020. "Redesigning residual cost allocation in electricity tariffs: A proposal to balance efficiency, equity and cost recovery," Renewable Energy, Elsevier, vol. 155(C), pages 257-266.
    2. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    3. Abada, I. & Ehrenmann, A. & Lambin, X., 2018. "Unintended consequences: The snowball effect of energy communities," Cambridge Working Papers in Economics 1828, Faculty of Economics, University of Cambridge.
    4. Osaru Agbonaye & Patrick Keatley & Ye Huang & Motasem Bani Mustafa & Neil Hewitt, 2020. "Design, Valuation and Comparison of Demand Response Strategies for Congestion Management," Energies, MDPI, vol. 13(22), pages 1-29, November.
    5. Passey, Robert & Haghdadi, Navid & Bruce, Anna & MacGill, Iain, 2017. "Designing more cost reflective electricity network tariffs with demand charges," Energy Policy, Elsevier, vol. 109(C), pages 642-649.
    6. Simshauser, Paul & Whish-Wilson, Patrick, 2017. "Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland," Energy Economics, Elsevier, vol. 62(C), pages 92-103.
    7. Küfeoğlu, Sinan & Pollitt, Michael G., 2019. "The impact of PVs and EVs on domestic electricity network charges: A case study from Great Britain," Energy Policy, Elsevier, vol. 127(C), pages 412-424.
    8. Tim Nelson & Stephanie Bashir & Eleanor McCracken-Hewson & Michael Pierce, 2017. "The Changing Nature of the Australian Electricity Industry," Economic Papers, The Economic Society of Australia, vol. 36(2), pages 104-120, June.
    9. Li, Na & Hakvoort, Rudi A. & Lukszo, Zofia, 2021. "Cost allocation in integrated community energy systems - A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 144(C).
    10. Jessica Thomsen & Christoph Weber, "undated". "How the design of retail prices, network charges, and levies affects profitability and operation of small-scale PV-Battery Storage Systems," EWL Working Papers 1903, University of Duisburg-Essen, Chair for Management Science and Energy Economics.
    11. Beaufils, Timothé & Pineau, Pierre-Olivier, 2019. "Assessing the impact of residential load profile changes on electricity distribution utility revenues under alternative rate structures," Utilities Policy, Elsevier, vol. 61(C).
    12. Timothé Beaufils & Pierre-Olivier Pineau, 2018. "Structures tarifaires et spirale de la mort : État des lieux des pratiques de tarification dans la distribution d’électricité résidentielle," CIRANO Working Papers 2018s-27, CIRANO.
    13. Neuteleers, Stijn & Mulder, Machiel & Hindriks, Frank, 2017. "Assessing fairness of dynamic grid tariffs," Energy Policy, Elsevier, vol. 108(C), pages 111-120.
    14. Sigurd Bjarghov & Hossein Farahmand & Gerard Doorman, 2021. "Grid Tariffs Based on Capacity Subscription: Multi Year Analysis on Metered Consumer Data," Papers 2111.06253, arXiv.org.
    15. Schittekatte, Tim & Momber, Ilan & Meeus, Leonardo, 2018. "Future-proof tariff design: Recovering sunk grid costs in a world where consumers are pushing back," Energy Economics, Elsevier, vol. 70(C), pages 484-498.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    2. Mosácula, Celia & Chaves-Ávila, José Pablo & Reneses, Javier, 2019. "Reviewing the design of natural gas network charges considering regulatory principles as guiding criteria in the context of the increasing interrelation of energy carriers," Energy Policy, Elsevier, vol. 126(C), pages 545-557.
    3. Daruwala, Farhad & Denton, Frank T. & Mountain, Dean C., 2020. "One size may not fit all: Welfare benefits and cost reductions with optional differentiated household electricity rates," Resource and Energy Economics, Elsevier, vol. 61(C).
    4. Müller, Gernot, 2006. "Zur Ökonomie von Trassenpreissystemen," WIK Discussion Papers 279, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    5. Simshauser, P., 2021. "Rooftop Solar PV and the Peak Load Problem in the NEM’s Queensland Region," Cambridge Working Papers in Economics 2180, Faculty of Economics, University of Cambridge.
    6. Mathias Mier, 2018. "Policy Implications of a World with Renewables, Limited Dispatchability, and Fixed Load," Working Papers V-412-18, University of Oldenburg, Department of Economics, revised Jul 2018.
    7. Mathias Mier, 2020. "Efficient Pricing of Electricity Revisited," ifo Working Paper Series 342, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. José Silva Ruiz, 2010. "La eficiencia y la equidad en la fijación de precios de los servicios públicos: evolución de la teoría de la tarifa óptima en dos partes y el caso del servicio de agua potable," Revista CIFE, Universidad Santo Tomás, June.
    9. David Encaoua & Michel Moreaux, 1987. "L'analyse théorique des problèmes de tarification et d'allocation des coûts dans les télécommunications," Revue Économique, Programme National Persée, vol. 38(2), pages 375-414.
    10. Brennan, Timothy J., 2000. "The Economics of Competition Policy: Recent Developments and Cautionary Notes in Antitrust and Regulation," Discussion Papers 10716, Resources for the Future.
    11. Paul Simshauser and David Downer, 2016. "On the Inequity of Flat-rate Electricity Tariffs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    12. Robert Albon, 1988. "The Welfare Costs of the Australian Telecommunications Pricing Structure," The Economic Record, The Economic Society of Australia, vol. 64(2), pages 102-112, June.
    13. Simshauser, Paul, 2018. "Price discrimination and the modes of failure in deregulated retail electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 54-70.
    14. María Angeles García Valiñas, 2005. "Promotion and remuneration of university professors: from the LRU to the COU," Hacienda Pública Española / Review of Public Economics, IEF, vol. 172(1), pages 119-143, June.
    15. Matsukawa, Isamu, 2008. "The effects of average revenue regulation on electricity transmission investment and pricing," Energy Economics, Elsevier, vol. 30(3), pages 696-714, May.
    16. Richard Schuler, 2012. "Pricing the use of capital-intensive infrastructure over time and efficient capacity expansion: illustrations for electric transmission investment," Journal of Regulatory Economics, Springer, vol. 41(1), pages 80-99, February.
    17. Rothengatter, Werner, 2003. "How good is first best? Marginal cost and other pricing principles for user charging in transport," Transport Policy, Elsevier, vol. 10(2), pages 121-130, April.
    18. K. Pushpangadan & G. Murugan, 1998. "Pricing with changing welfare criterion: An application of Ramsey-Wilson model to urban water supply," Centre for Development Studies, Trivendrum Working Papers 287, Centre for Development Studies, Trivendrum, India.
    19. Farhad Daruwala & Frank T. Denton & Dean C. Mountain, 2017. "One Size May Not Fit All: Welfare Benefits And Cost Reductions With Differentiated Household Electricity Rates In A General Equilibrium Model," Department of Economics Working Papers 2017-03, McMaster University.
    20. Paul L. Joskow & Roger G. Noll, 1981. "Regulation in Theory and Practice: An Overview," NBER Chapters, in: Studies in Public Regulation, pages 1-78, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:48:y:2015:i:c:p:139-149. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.