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on Regulation |
| By: | Juan Rosellon (Division of Economics, CIDE); Luis Herrera |
| Abstract: | 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). |
| Keywords: | Electricity transmission, incentive regulation, distributive efficiency |
| JEL: | L50 L51 L94 Q40 Q42 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:emc:wpaper:dte563&r=reg |
| By: | Klaus Gugler (Department of Economics, Vienna University of Economics and Business); Mario Liebensteiner (Research Institute for Regulatory Economics, Vienna University of Economics and Business); Stephan Schmitt (WIK Consult and Research Institute for Regulatory Economics, Vienna University of Economics and Business) |
| Abstract: | The EU has been promoting unbundling of the transmission grid from other stages of the electricity supply chain with the aim of fostering competition in the upstream stage of electricity generation. At presence, ownership unbundling is the predominant form of unbundling in Europe. However, the benefits of increased competition from ownership unbundling of the transmission grid may come at the cost of lost vertical synergies between the formerly integrated stages of electricity supply. The policy debate generally neglects such potential costs of unbundling, yet concentrates on its benefits. Therefore European cross-country evidence may shed some light on this issue. This study helps fill this void by empirically estimating the magnitude of economies of vertical integration (EVI) between electricity generation and transmission based on a quadratic cost function. For this purpose we employ novel firm-level panel data of major European electricity utilities. Our results confirm the presence of substantial EVI, which put the policy measure of transmission ownership unbundling into question. |
| Keywords: | Cost function, Economies of Scope, Ownership Unbundling, Vertical Integration |
| JEL: | L22 L25 L51 Q48 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp190&r=reg |
| By: | Asa Johannesson Linden; Fotios Kalantzis; Emmanuelle Maincent; Jerzy Pienkowski |
| Abstract: | In the recent years electricity tariff deficits emerged in Spain, Portugal, Greece and in some other Member States. Tariff deficits are shortfalls of revenues in the electricity system, which arise when the tariffs for the regulated components of the retail electricity price are set below the corresponding costs borne by the energy companies. The objective of this paper is to define and identify the different cases of electricity tariff deficits in Member States. The analysis starts with a description of the functioning of the electricity market in Europe, including price formation and different forms of government intervention, such as support to renewable energy and retail price regulation. Then the paper determines the existence of tariff deficits in the various Member States on the basis of common criteria and describes their common features, as well as particular characteristics of tariff deficits in the countries concerned. An econometric analysis is carried out to identify the drivers of the emergence of a tariff deficit. The final section discusses the impact on the individual firms and on public finances and provides the conclusions. |
| JEL: | D21 D22 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0534&r=reg |
| By: | Knieps, Günter |
| Abstract: | This chapter is organized as follows: In section 2 the historical roots of third party access regulation are characterized. This includes the Prussian railway law of 1838 and the terminal railroad case of 1912. In section 3 a normative frame-work, based on modern network economics, for the evaluation of third party access policies is provided. In section 4, the gradual process of market opening for railway transport services and the evolution of third party access regulation in Europe are characterized. In this context the potentials for competition on the markets for passenger rail services and public subsidies are also considered. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluivr:150&r=reg |
| By: | Greaker, Mads (Statstics Norway); Hoel, Michael (Dept. of Economics, University of Oslo); Rosendahl, Knut Einar (Norwegian Univeristy of Life Sciences) |
| Abstract: | Recent literature on biofuels has questioned whether biofuels policies are likely to reduce the negative effects of climate change. Our analysis explicitly takes into account that oil is a non-renewable natural resource. A blending mandate has no effect on total cumulative oil extraction. However, extraction of oil is postponed as a consequence of the renewable fuel standard. Thus, if emissions from biofuels are negligible, the standard will have beneficial climate effects. The standard also reduces total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are non-negligible, a renewable fuel standard may still reduce climate costs. In fact our simulations show that even for biofuels that are almost as emissions-intensive as oil, a renewable fuel standard has beneficial climate effects. |
| Keywords: | Renewable fuel standard; Blending mandate; Biofuels; Climate costs; Petroleum extraction profi…le |
| JEL: | Q30 Q40 Q50 |
| Date: | 2014–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2014_009&r=reg |
| By: | Monica Bonacina; Anna Cretì; Carlotta Mariotto; Federico Pontoni |
| Abstract: | The Italian water sector has encompassed major changes since mid?90s when law 96/94 has entered into force. Next to private participation, integration of services and growth in production scales, the reform was intended to revolutionize the traditional financial model almost fully based on public funds. Although citizens, politicians and experts on water services have been debating for a long time on the impact of the reform on the industry, as well as on the fairness of a tariff system inspired by the concept of full cost recovery, we are still on a state of uncertainty. The final purpose of this paper is to provide regulators with guidelines that could be used to revise water tariffs in a way that may be cost?efficient, sustainable and fair to the most. According to the analyses, which rely on firm?specific Xinefficiency scores, despite a satisfactory mean level of performance, in the period under investigation, efficiency improvements have been limited. Moreover, the results demonstrate that both the ownership structure and politics do have an impact on the efficiency of the firms: in particular, public shareholding and centreright local governments negatively affects firms’ performances. To this respect, we think that a more effective regulation would also have the side effect of loosening the ties between politicians and managers. |
| Keywords: | Water Policy, Water Distribution, Water Pricing, Efficiency. |
| JEL: | H44 L95 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bcu:iefewp:iefewp72&r=reg |
| By: | J. Scott Holladay; Michael K. Price; Marianne Wanamaker |
| Abstract: | In periods of high energy demand, utilities frequently issue "emergency" appeals for conservation over peak hours to reduce brownout risk. We estimate the impact of such appeals using high-frequency data on actual and forecasted electricity generation, pollutant emission measures, and real-time prices. Our results suggest a perverse impact; while there is no significant reduction in grid stress over superpeak hours, such calls lead to increased off-peak generation, CO2 emissions, and price volatility. We postulate that consumer attempts at load shifting lead to this result. |
| JEL: | D04 Q4 Q5 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20706&r=reg |
| By: | Cheng, Xiaomei (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Endre (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Mette (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Our paper applies data envelopment analysis (DEA) and stochastic non-parametric envelopment of data (StoNED) to measure cost efficiency of electricity distribution companies. The data cover 123 Norwegian electricity distribution companies during 2004-2010, and the performance of these companies is compared across the two models with and without environmental variables, i.e., variables that account for local conditions that affect the companies’ costs. The results indicate that the cost efficiency estimates with the StoNED approach are much higher than with the DEA method when we do not consider environmental variables. It shows that the choice of estimation methods is important with respect to the estimated impact of environmental variables on the performance. In addition, the inclusion of the environmental variables has considerable effect on the classification of companies with respect to local returns to scale. |
| Keywords: | Cost efficiency; DEA; Environmental variables; Regulation; StoNED |
| JEL: | Q00 |
| Date: | 2014–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2014_028&r=reg |
| By: | Vesterberg, Mattias (Department of Economics, Umeå School of Business and Economics); Kiran B. Krishnamurthy, Chandra (Department of Economics, Umeå School of Business and Economics); Bayrak, Oben (CERE and Department of Forest Economics) |
| Abstract: | Using a unique and highly detailed data set of energy consumption at the appliance-level for 390 Swedish households, seemingly unrelated regression (SUR)-based end-use specific load curves are estimated. The estimated load curves are then used to explore possible restrictions on load shifting (e.g. the office hours schedule) as well as the cost implications of different load shift patterns. The cost implications of shifting load from “expensive” to “cheap” hours, using aggregate spot price data, is computed to be very small; roughly 2-5% daily cost reduction from shifting load up to seven hours ahead, indicating small incentives for households (and suppliers) to adopt dynamic pricing of electricity. In addition, end-use-specific income elasticites are also estimated, for the first time for Sweden, using again a SUR framework. The estimated income elasticties are large and significant, varying from a high of 0.8-1.25 for heating to a low of 0.20.5 for lighting. Aggregate income elasticity is also high, varying from 0.5 to 0.81. Our results have important implications for Swedish energy policy, in particular for the Swedish government’s stated goal of realtime pricing. |
| Keywords: | Direct Metering; Residential Electricity Demand; Real time electricity pricing |
| JEL: | C30 D12 Q41 Q48 |
| Date: | 2014–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0903&r=reg |
| By: | Mehtap Kilic (Erasmus School of Economics); Elisa Trujillo-Baute (Universitat de Barcelona & IEB) |
| Abstract: | The power system has to deal with three main sources of uncertainty: demand uncertainty and load prediction errors, failure of power plants and uncertainty of wind. The growing share of wind and other intermittent generation sources in the European supply increases the uncertainty about power production in day-ahead and longer-term predictions. As EU member states increase the deployment of wind power and other intermittent renewable energy sources, the intraday and balancing market will gain more interest, as additional demand for reserve and response operations is needed. Hence, it becomes relevant to analyse the effect of wind power forecasting errors on intraday power prices. A higher forecast error will increase the need of intraday markets to balance out the oversupply or deficit of wind power on an hourly basis. This oversupply or deficit can be corrected though flexible hydropower plants; however the power price is highly influenced by the fluctuations in the reservoir level (Huisman et. al [2013]). In this paper, we question to what extent hydropower a stabilizing effect has on the impact of wind forecast errors on NordPool intraday prices. To do so, we examine the peak and off peak imbalance power prices for the Scandinavian market (ELBAS) from 2011 until 2013 with a Markov regime-switching model in periods with low and high hydro reservoir levels. Results indicate that under wind forecast error, the use of hydropower capacity in intraday markets is proven to be an effective volatility control mechanism. However, the price stabilizing effect of hydropower capacity does not take place at all times. |
| Keywords: | Electricity, intraday prices, wind forecast error, Markov-switching models |
| JEL: | L11 Q41 C24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2013/6/doc2014-30&r=reg |
| By: | Christophe Heyndrickx; Victoria Alexeeva-Taleebi; Natalia Tourdyeva |
| Abstract: | One of grand challenges which are faced by Russia today is to deregulate its gas market while favouring longer-term growth of economy. Since the 1990s, several proposals for structural reforms of Russian gas industry have been intensively debated, including the split-up of Gazprom. From the mid-2000s onwards, the key component of the reforms has become the introduction of a new pricing scheme for natural gas supply at the domestic markets. This is claimed to fit in a policy promoting energy efficiency, increasing investments in natural gas production and bringing the natural gas price on the domestic market closer to long term cost recovery. Underpricing of natural gas at the domestic markets was an explicit feature of the Soviet era, aimed at stimulating industrial growth. In the post-Soviet period, domestic gas prices were kept at relatively low levels to back up economic recovery, though this strategy had become increasingly untenable by 2006 in the light of Gazprom's investment needs into new extraction fields. A number of studies supported an upward price correction as a prerequisite for any structural reforms of Russian gas industry. Price increases on domestic market have been considered as a remedy to overcome the risk of a shortage in Russian gas sector. Since then domestic gas prices have been following a steady upward trend. The average regulated gas prices for both industrial consumers and private households have more than doubled from 2006 to 2011 . Nonetheless, today Russian consumers pay one third of the gas price charged abroad.. The growing momentum for gas price liberalization in Russia is increasingly constrained by fears of potentially strong adverse impact that market-based price setting principle will have on the economy. Based on a novel multi-regional, multi-sector and multi-household computable general equilibrium (CGE) model of the Russian Federation, this paper presents a simple yet a flexible framework for evaluating gas price reform. We found that the reform is feasible at low economic cost, without greater disparities in terms of increased inequity within and between country's federal districts. Large redistributive impacts can arise from specific mechanisms to recycle revenues. In terms of global environmental credentials, gas price liberalization can bring Russia on a substantially more sustainable path. The potential to foster adoption of energy efficiency measures by exploiting the revenue-recycling effect is, however, limited. |
| Keywords: | Regional general equilibrium model; sustainable development; natural gas pricing; Russia |
| JEL: | D58 H21 H22 Q48 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa14p1535&r=reg |
| By: | Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP - Vitor Miguel de Sousa Ribeiro) |
| Abstract: | This paper builds on a duopoly with horizontally differentiated firms, where firms simultaneously decide the long-term plan (location) in addition to the short-term issue (price). As in Bárcena-Ruiz and Casado-Izaga (2014), we introduce a third entity in the city by considering the presence of a policymaker that targets the long-run ideology (location) of the regulated sector. While Bárcena-Ruiz and Casado-Izaga (2014) relies on a non-discriminatory setting relatively to firms' quality, here we introduce quality distortion (a high-quality firm versus a low-quality firm). Our aim is to study the relationship between the long-term regulatory guidance provided by a policymaker and the ideal timing of the quality investment conducted by the high-quality firm. We find that it is irrelevant to the firm invest before or after the long-term decision of the policymaker. In this sense, we show that the long-term strategic guideline conducted by a regulatory authority is not the motivating source of firms' improvement-quality investments. Finally, we conclude that the presence of an asymmetric quality environment between firms leads to a movement to the right on firms' location, creates an ambiguous (an enhancing) effect on the equilibrium profit of the low-quality (high-quality) firm and generates a reduction of the equilibrium consumer surplus and equilibrium social welfare as well, relatively to a situation where no quality discrimination exists. |
| Keywords: | Spatial competition, Long-run decision, Policymaker location, Quality asymmetry, Price competition. |
| JEL: | D43 L13 L50 R12 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:552&r=reg |
| By: | Börjesson , Maria (KTH); Kristoffersson , Ida (SWECO) |
| Abstract: | This paper summarizes the traffic effects of the Gothenburg congestion charges introduced in 2013. The system is similar to the system introduced in Stockholm in 2006; both are designed as time-of-day dependent cordon pricing systems. We find that many effects and adaptation strategies are similar to those found in Stockholm, indicating a high transferability between smaller and larger cities with substantial differences in public transport use. However, there are also important differences regarding some of the effects, the accuracy of the model forecasts and public support arising from different topologies, public transport use, congestion levels and marketing of the congestion charges to the public. Finally, the Gothenburg case suggests that whether congestion charges are introduced or not depends on the support among the political parties, and that this is determined primarily by the prevailing institutional setting and power over revenues, and to a lower extent by the public support, and benefits from congestion reduction. |
| Keywords: | Congestion charges; Behavioural adaptation; Time-dependent cordon; Tolling system; Traffic effects; Public support; Transferability; System design |
| JEL: | R41 R42 R48 |
| Date: | 2014–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2014_025&r=reg |
| By: | Grzybowski, Lukasz; Verboven, Frank |
| Abstract: | We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process.We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network. |
| Keywords: | broadband access; fixed-to-mobile substitution; incumbency advantage |
| JEL: | L13 L43 L96 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10045&r=reg |
| By: | José Luis Bonifaz (Departamento de Economía, Universidad del Pacífico); Reyk Itakura |
| Abstract: | This study uses a stochastic frontier parametrical approach to analyze the inefficiency of firms in the water industry between 1999 and 2010. For this purpose, an unbalanced panel of data from 12 firms from all over Latin America was used. One of the main findings of the study is that companies from the private sector outperform those from the public sector over time. Another conclusion is that there are no economies of scale or density, considering the actual size of the average sector. Finally, inefficiency shows a positive correlation with the firms’ size and with the length of the network. |
| Keywords: | Inefficiency, Big, Urban, Water, Utilities, Latin, LatinAmerica, America, Private, Public, 1999, 2010, Panel, Data, 12, Firm, Economies of scale, Density, Size, Length, Network |
| JEL: | D24 H42 H54 H0 L10 L25 L32 L33 L95 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pai:wpaper:14-09&r=reg |
| By: | Kifmann, Mathias; Siciliani, Luigi |
| Abstract: | This study investigates hospitals’ dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients’ severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients. |
| Keywords: | DRGs; hospitals; selection; severity |
| JEL: | I11 I18 L13 L44 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10155&r=reg |