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Ownership vs. Regulation in Electricity Reform: The Role of Governance

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  • Meade, Richard

Abstract

Electricity reform typically involves little regard to the possibility that customerownership might substitute for the "protections" of state ownership or for investor ownership under regulatory safeguards where market power is a concern. Recognising that regulation is itself costly and that market contracting ownership and regulation are partly substitutable forms of governance this paper argues that state ownership of natural monopolies in electricity distribution (and transmission) is inefficient. Unregulatedcustomer ownership of these activities is superior better aligning monopolist and customer incentives at lower cost. Even unregulated investor ownership of distribution is predicted to better balance the costs of market contracting ownership and regulation than does state ownership. Regulation of customer owned distribution (and transmission) is also shown to be inefficient imposing regulatory costs without compensatory gains. Examples of widespread customer ownership of distribution in New Zealand and of distribution and sometimes transmission in the US illustrates how such ownership has evolved as an effective substitute for regulation. Policy implications are drawn.

Suggested Citation

  • Meade, Richard, 2005. "Ownership vs. Regulation in Electricity Reform: The Role of Governance," Working Paper Series 18953, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    • Handle: RePEc:vuw:vuwcsr:18953
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    1. Evans, Lewis & Meade, Richard, 2001. "Economic Analysis of Financial Transmission Rights (FTRs) with Specific Reference to the Transpower Proposal for New Zealand," Working Paper Series 3902, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
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    Cited by:

    1. de Hauteclocque, Adrien & Rious, Vincent, 2011. "Reconsidering the European regulation of merchant transmission investment in light of the third energy package: The role of dominant generators," Energy Policy, Elsevier, vol. 39(11), pages 7068-7077.
    2. David Zetland, 2013. "Water managers are selfish like us," Chapters, in: John A. List & Michael K. Price (ed.), Handbook on Experimental Economics and the Environment, chapter 14, pages 407-433, Edward Elgar Publishing.

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