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Comparing welfare effects of different regulation schemes: An application to the electricity distribution industry

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  • Kopsakangas-Savolainen, Maria
  • Svento, Rauli

Abstract

We compare the welfare effects of different regulation schemes of electricity distribution utilities. The compared regulation schemes are Fixed Price regulation, Cost of Service regulation, Menu of Cost-Contingent Contracts and Simple Menu of Contracts. In our calculations we utilize the information of a firm's potential to improve cost efficiency. The firm-specific cost information of Finnish electricity distribution utilities is obtained by using various Stochastic Frontier models. Our basic result is that welfare can be improved by changing the Cost of Service regulation scheme to the Menu of Contracts regulation. Welfare also increases in the case of Fixed Price regulation and Simple Menu of Contract regulation. There is however, a significant difference among regulation regimes on how this improved welfare is distributed to consumers and producers.

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  • Kopsakangas-Savolainen, Maria & Svento, Rauli, 2010. "Comparing welfare effects of different regulation schemes: An application to the electricity distribution industry," Energy Policy, Elsevier, vol. 38(11), pages 7370-7377, November.
    • Handle: RePEc:eee:enepol:v:38:y:2010:i:11:p:7370-7377
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    6. Cédric Clastres, 2011. "Smart grids : Another step towards competition, energy security and climate change objectives," Post-Print halshs-00617702, HAL.
    7. Li, Hong-Zhou & Tian, Xian-Liang & Zou, Tao, 2015. "Impact analysis of coal-electricity pricing linkage scheme in China based on stochastic frontier cost function," Applied Energy, Elsevier, vol. 151(C), pages 296-305.
    8. Campbell, Alrick, 2018. "Cap prices or cap revenues? The dilemma of electric utility networks," Energy Economics, Elsevier, vol. 74(C), pages 802-812.
    9. Saastamoinen, Antti & Kuosmanen, Timo, 2016. "Quality frontier of electricity distribution: Supply security, best practices, and underground cabling in Finland," Energy Economics, Elsevier, vol. 53(C), pages 281-292.

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