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Simulating the restructuring of the Flemish electricity distribution sector

Author

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  • Guido Pepermans

    () (K.U.Leuven, C.E.S., Energy, Transport and Environment)

Abstract

In Flanders (Belgium), distribution companies are to a large extent owned by the municipalities and as such these municipalities collect an important share of the profits from electricity distribution. This situation (by many it is seen as a hidden tax) cannot be maintained because, in the process of electricity market liberalisation, the ownership will be reshuffled and because the old regulation mechanism, allowing for such cash flows, will be revised. This paper presents some simulations on the restructuring of the electricity distribution sector, using a partial equilibrium model. The focus of the simulations is on the impact of the choice of the regulation mechanism on prices and on the municipalities' budget. Three regulation schemes are simulated, 'rate-of-return' (ROR) regulation, 'constant profit per unit of output' (CPU) regulation and 'price-cap' (PC) regulation. The simulations show that, irrespective of the regulation scheme, it is not obvious that end-user electricity prices will decrease after the liberalisation. Moreover, the restructuring will have a large impact on the profits received by the municipalities. The sign of this impact depends on the regulation mechanism that is imposed, but it appears that, from the three regulation mechanisms that were analysed, the ROR mechanism performs worst, both in terms of municipal cash flows and of economic welfare.

Suggested Citation

  • Guido Pepermans, 2003. "Simulating the restructuring of the Flemish electricity distribution sector," Energy, Transport and Environment Working Papers Series ete0301, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
  • Handle: RePEc:ete:etewps:ete0301
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    File URL: https://lirias.kuleuven.be/bitstream/123456789/119381/1/ETE-WP-2003-01.pdf
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    Cited by:

    1. Christian Dreger & Manuel Artís & Rosina Moreno & Raúl Ramos & Jordi Suriñach, 2007. "Study on the feasibility of a tool to measure the macroeconomic impact of structural reforms," European Economy - Economic Papers 2008 - 2015 272, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    Keywords

    Electricity distribution; Electricity markets; Electricity modelling; Regulation; Strategic behaviour;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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