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The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing

  • Isamu Matsukawa

    (Musashi University)

This paper investigates the long-run effects of average revenue regulation on an electricity transmission monopolist who applies a two- part tariff comprising a variable congestion price and a non-negative fixed access fee. A binding constraint on the monopolistfs expected average revenue lowers the access fee, promotes transmission investment, and improves consumer surplus. In a case of any linear or log-linear electricity demand function with a positive probability that no congestion occurs, average revenue regulation is allocatively more efficient than a Coasian two-part tariff if a positive access fee under average revenue regulation is lower than that under a Coasian two-part tariff.

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File URL: http://128.118.178.162/eps/io/papers/0512/0512009.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0512009.

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Length: 55 pages
Date of creation: 19 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0512009
Note: Type of Document - pdf; pages: 55
Contact details of provider: Web page: http://128.118.178.162

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  1. Hogendorn, Christiaan, 2003. "Collusive Long-Run Investments under Transmission Price-Caps," Journal of Regulatory Economics, Springer, vol. 24(3), pages 271-91, November.
  2. Deng, Shi-Jie & Oren, Shmuel S, 2001. "Priority Network Access Pricing for Electric Power," Journal of Regulatory Economics, Springer, vol. 19(3), pages 239-70, July.
  3. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  4. isamu matsukawa, 2005. "Congestion pricing of inputs in vertically related markets," Industrial Organization 0506012, EconWPA.
  5. Mark Armstrong & John Vickers, 1991. "Welfare Effects of Price Discrimination by a Regulated Monopolist," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 571-581, Winter.
  6. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc.
  7. Cowan, Simon G B, 1997. "Tight Average Revenue Regulation Can Be Worse Than No Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 75-88, March.
  8. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  9. Ordover, Janusz A & Panzar, John C, 1982. "On the Nonlinear Pricing of Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 659-75, October.
  10. Martzoukos, Spiros H. & Teplitz-Sembitzky, Witold, 1992. "Optimal timing of transmission line investments in the face of uncertain demand : An option valuation approach," Energy Economics, Elsevier, vol. 14(1), pages 3-9, January.
  11. Baldick, Ross & Kahn, Edward, 1993. "Network Costs and the Regulation of Wholesale Competition in Electric Power," Journal of Regulatory Economics, Springer, vol. 5(4), pages 367-84, December.
  12. Jean-Daniel Saphores & Eric Gravel & Jean-Thomas Bernard, 2004. "Regulation and Investment under Uncertainty: An Application to Power Grid Interconnection," Journal of Regulatory Economics, Springer, vol. 25(2), pages 169-186, 03.
  13. Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 61-92.
  14. Boyce, John R. & Hollis, Aidan, 2005. "Governance of electricity transmission systems," Energy Economics, Elsevier, vol. 27(2), pages 237-255, March.
  15. Michael A. Crew & Paul R. Kleindorfer, 1976. "Peak Load Pricing with a Diverse Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 207-231, Spring.
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  17. repec:cup:cbooks:9780521314008 is not listed on IDEAS
  18. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
  19. Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
  20. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
  21. Bushnell, James & Stoft, Steven, 1997. "Improving Private Incentives for Electric Grid Investment," Staff General Research Papers 31549, Iowa State University, Department of Economics.
  22. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  23. Einhorn, Michael A, 1990. "Electricity Wheeling and Incentive Regulation," Journal of Regulatory Economics, Springer, vol. 2(2), pages 173-89, June.
  24. William Vickrey, 1971. "Responsive Pricing of Public Utility Services," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 337-346, Spring.
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