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The welfare consequences of tariff rebalancing in the domestic gas market

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  • Andres Gomez-Lobo

Abstract

The domestic energy markets in the United Kingdom are still in a process of structural change. Earlier this year, limited competition for the supply of household domestic gas was introduced, with full-scale competition expected to develop in the next few years. Competition for the supply of electricity to households is expected to begin in 1998. The introduction of competition in the supply of these energy goods will force tariffs to become more cost-reflective. Until now, maintaining crosssubsidies between consumer groups has not posed any difficulties, given that the suppliers of electricity as well as British Gas have enjoyed monopoly concessions. Profits lost by subsidising one group of consumers have been compensated by higher price-over-cost margins for other groups. Competition is likely to change this. New entrants will try to target market segments where current prices are above supply costs and will have no incentive to supply groups where costs are above prices. To survive, incumbents — who have universal services obligations — will be forced to end internal cross-subsidies.

Suggested Citation

  • Andres Gomez-Lobo, 1996. "The welfare consequences of tariff rebalancing in the domestic gas market," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 49-65, November.
  • Handle: RePEc:ifs:fistud:v:17:y:1996:i:4:p:49-65
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    File URL: http://www.ifs.org.uk/fs/articles/fsgomez.pdf
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    References listed on IDEAS

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    Cited by:

    1. Estache, Antonio & Gomez-Lobo, Andres & Leipziger, Danny, 2000. "Utility privatization and the needs of the poor in Latin America - Have we learned enough to get it right?," Policy Research Working Paper Series 2407, The World Bank.
    2. Serra, Pablo, 2000. "Subsidies in Chilean public utilities," Policy Research Working Paper Series 2445, The World Bank.
    3. Raffaele Miniaci & Carlo Scarpa & Paola Valbonesi, 2014. "Fuel poverty and the energy benefits system: The Italian case," IEFE Working Papers 66, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.

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