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Employing Gain-Sharing Regulation to Promote Forward Contracting in the Electricity Sector

Author

Listed:
  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E. M.

    (University of Florida)

Abstract

We examine the reductions in electricity procurement costs that can be secured when gain-sharing regulation is employed to induce a regulated load serving entity (LSE) to undertake forward contracting despite associated political risk. We identify arguably plausible conditions under which a modest degree of gain sharing can induce an LSE to undertake forward contracting that substantially reduces the LSE's procurement costs, to the benefit of retail consumers.

Suggested Citation

  • Brown, David P. & Sappington, David E. M., 2022. "Employing Gain-Sharing Regulation to Promote Forward Contracting in the Electricity Sector," Working Papers 2022-10, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2022_010
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    More about this item

    Keywords

    forward contracting; incentive regulation; gain sharing;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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