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Open configuration options Bargaining under Monopoly: Negotiated Settlement, Customer Bargaining and Australian Energy Networks

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  • Mountain, B.

Abstract

This paper examines whether negotiated settlement has a larger role to play in the economic regulation of Australian energy networks. The argument does not suggest that monopoly has disappeared, or that regulation can sensibly be wished away. The question is more modest: where the assets are sunk, the relationship is repeated and the regulator is necessarily imperfectly informed, is it always best for the regulator to determine every material term? Settlement is best understood as a form of regulatory contracting, not as deregulation. It is valuable only where the gains from revealing customer preferences, trading across interdependent issues, securing commitment and adapting over time exceed the costs of representation, negotiation, verification and public -interest approval. Experience at FERC, in Florida, in Canada, in Australian access regimes, in GB energy and in Scottish water suggests that settlement requires capable representation, a credible adjudicative fallback and a regulator willing to review packages rather than relitigate every component. Australia’s Better Resets process has moved in a useful direction, but engagement is not the same as bargaining. The paper therefore proposes a cautious Australian pilot, beginning with agreed facts and partial settlements before any full revenue-package settlement is attempted.

Suggested Citation

  • Mountain, B., 2026. "Open configuration options Bargaining under Monopoly: Negotiated Settlement, Customer Bargaining and Australian Energy Networks," Cambridge Working Papers in Economics 2661, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2661
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    References listed on IDEAS

    as
    1. Doucet, Joseph & Littlechild, Stephen, 2006. "Negotiated settlements: The development of legal and economic thinking," Utilities Policy, Elsevier, vol. 14(4), pages 266-277, December.
    2. Stephen Littlechild, 2008. "Some Applied Economics of Utility Regulation A Paper in Honor of David Newbery," The Energy Journal, , vol. 29(2_suppl), pages 43-62, December.
    3. Joseph Doucet & Stephen Littlechild, 2006. "Negotiated Settlements: The development of economic and legal thinking," Working Papers EPRG 0604, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Zhongmin Wang, 2004. "Settling Utility Rate Cases: An Alternative Ratemaking Procedure," Journal of Regulatory Economics, Springer, vol. 26(2), pages 141-163, September.
    5. Bordignon, Stephen & Littlechild, Stephen, 2012. "The Hunter Valley access undertaking: Elements of a negotiated settlement," Transport Policy, Elsevier, vol. 24(C), pages 179-187.
    6. Darryl Biggar & Matthieu Glachant & Magnus Söderberg, 2018. "Monopoly regulation when customers need to make sunk investments: evidence from the Swedish district heating sector," Journal of Regulatory Economics, Springer, vol. 54(1), pages 14-40, August.
    7. Stephen Littlechild, 2024. "Incentive Regulation From the Inside: Resetting 12 RPI-X Price Caps in 1993–1995," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 375-430, September.
    8. Stephen Littlechild, 2009. "Stipulated settlements, the consumer advocate and utility regulation in Florida," Journal of Regulatory Economics, Springer, vol. 35(1), pages 96-109, February.
    9. Littlechild, Stephen, 2014. "The Customer Forum: Customer engagement in the Scottish water sector," Utilities Policy, Elsevier, vol. 31(C), pages 206-218.
    10. Littlechild, Stephen, 2009. "The bird in hand: Stipulated settlements in the Florida electricity sector," Utilities Policy, Elsevier, vol. 17(3-4), pages 276-287, September.
    11. Doucet, Joseph & Littlechild, Stephen, 2009. "Negotiated settlements and the National Energy Board in Canada," Energy Policy, Elsevier, vol. 37(11), pages 4633-4644, November.
    12. Chakravorty, Shourjo, 2015. "A study of the negotiated-settlement practice in regulation: Some evidence from Florida," Utilities Policy, Elsevier, vol. 32(C), pages 12-18.
    13. Fellows, G. Kent, 2011. "Negotiated settlements with a cost of service backstop: The consequences for depreciation," Energy Policy, Elsevier, vol. 39(3), pages 1505-1513, March.
    14. Havyatt, David, 2022. "Toward consumer-centric energy network regulation: Australia's experience," Utilities Policy, Elsevier, vol. 78(C).
    15. Eskesen, Anita, 2021. "A contract design perspective on balancing the goals of utility regulation," Utilities Policy, Elsevier, vol. 69(C).
    16. Littlechild, Stephen, 2012. "The process of negotiating settlements at FERC," Energy Policy, Elsevier, vol. 50(C), pages 174-191.
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    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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