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On Distributive Effects of Optimal Regulation for Power Grid Expansion

  • Luis Ángel Herrera
  • Juan Rosellón

To date, the distributive implications of incentive regulation on electricity transmission networks have not been explicitly studied in the literature. More specifically, the parameters that a regulator might use to achieve distributive efficiency under price-cap regulation have not yet been identified. To discern these parameters is the motivation for the research presented in this paper. We study how different weight parameters affect the distributive characteristics of optimal price-cap incentive regulation for electricity transmission. We find that a regulator's use of ideal (Laspeyres) weights tends to be more beneficial for the Transco (consumers) than for consumers (the Transco).

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.427952.de/dp1327.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1327.

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Length: 34 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwwpp:dp1327
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  1. Juan Rosellón & Hannes Weigt, 2010. "A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application," Discussion Papers of DIW Berlin 1019, DIW Berlin, German Institute for Economic Research.
  2. David Sibley, 1989. "Asymmetric Information, Incentives and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 392-404, Autumn.
  3. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
  4. Juan Rosellón & Zdenka Mysliková & Eric Zenón, 2010. "Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or Both?)," Discussion Papers of DIW Berlin 1026, DIW Berlin, German Institute for Economic Research.
  5. repec:emc:wpaper:dte-523 is not listed on IDEAS
  6. Bertoletti, Paolo & Poletti, Clara, 1997. "Welfare effects of discriminatory two-part tariffs constrained by price caps," Economics Letters, Elsevier, vol. 56(3), pages 293-298, November.
  7. Juan Rosellon & Ingo Vogelsang & Hannes Weigt, 2009. "Long-run Cost Functions for Electricity Transmission," Working papers DTE 465, CIDE, División de Economía.
  8. Juan Rosellon & William Hogan & Ingo Vogeslang, 2007. "Toward a Combined Merchant-Regulatory Mechanism for Electricity Transmission Expansion," Working papers DTE 389, CIDE, División de Economía.
  9. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  10. Vogelsang, Ingo, 1989. "Two-part tariffs as regulatory constraints," Journal of Public Economics, Elsevier, vol. 39(1), pages 45-66, June.
  11. Wolf-Peter Schill & Juan Rosellón & Jonas Egerer, 2011. "Regulated Expansion of Electricity Transmission Networks: The Effects of Fluctuating Demand and Wind Generation," Discussion Papers of DIW Berlin 1109, DIW Berlin, German Institute for Economic Research.
  12. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
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