Category Archives: Working Papers 2004

EP 67

Karl Markiewicz, Nancy Rose, Catherine Wolfram

Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency

EP 67  | Non-Technical Summary | PDF

Abstract: This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.

Keywords: Efficiency, Production, Competition, Electricity restructuring, Electric Generation, Regulation

EP 64

David Newbery Electricity Liberalisation in Britain: the quest for a satisfactory wholesale market design EP 64  | Non-Technical Summary | PDF Abstract: Britain was the exemplar of electricity market reform, demonstrating the importance of ownership unbundling and workable competition in generation and supply. Privatisation created de facto duopolies that supported increasing price-cost margins and induced… Read more

EP 63

Richard Green Electricity Transmission Pricing: How much does it cost to get it wrong? EP 63  | Non-Technical Summary | PDF Abstract: Economists know how to calculate optimal prices for electricity transmission. These are rarely applied in practice. This paper develops a thirteen-node model of the transmission system in England and Wales, incorporating losses and… Read more

EP 62

Stephen Littlechild, Carlos Skerk Regulation of Transmission Expansion in Argentina: Part II – Developments since the Fourth Line EP 62  | Non-Technical Summary | PDF Abstract: Argentina’s 1992 transmission expansion policy was subsequently modified by, for example, including provision for transmission companies and proposing quality and substation expansions. There have been several such expansions, and… Read more

EP 61

Stephen Littlechild, Carlos Sherk Regulation of Transmission Expansion in Argentina: Part I – State Ownership, Reform and the Fourth Line EP 61  | Non-Technical Summary | PDF Abstract: From 1992 to 2002, major expansions of the Argentine electricity transmission sector depended on users proposing, voting and paying for such expansions, which were then put out… Read more

EP 58

Fabien Roques, David Newbery, William Nuttall Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA EP 58  | Non-Technical Summary | PDF Abstract: Three years after the controversial change of the British market design from compulsory Pool with capacity payments to decentralised energy-only New Electricity Trading Arrangements (NETA) market framework, we compare… Read more

EP 56

Juan-Pablo Montero Pollution Markets with Imperfectly Observed Emissions EP 56  | Non-Technical Summary | PDF Abstract: I study the advantages of pollution permit markets over traditional standard regulations when the regulator has incomplete information on firms’ emissions and costs of production and abatement (e.g., air pollution in large cities). Because the regulator only observes each… Read more

EP 55

Andrew Sweeting Market Power in the England and Wales Wholesale Electricity Market 1995-2000 EP 55 | Non-Technical Summary | PDF Abstract: This paper shows that generators exercised increasing market power in the England and Wales wholesale electricity market in the second half of the 1990s despite declining market concentration. It examines whether this was consistent… Read more

EP 54

Paul Joskow Transmission Policy in the United States EP 54 | Non-Technical Summary | PDF Abstract: This paper provides an overview of the development of electric power transmission access, pricing and investment policies in the U.S. over the last 15 years and evaluates the current state of those policies. It includes a discussion of pre-liberalisation… Read more

EP 53

Paul Joskow, Jean Tirole Reliability and Competitive Electricity Markets EP53  | Non-Technical Summary | PDF Abstract: Deregulation of the electricity sector has resulted in conflict between the economic aims of creating competitive wholesale and retail markets, and an engineering focus on reliability of supply. The paper starts by deriving the optimal prices and investment program… Read more

EP 52

Michael Pollitt Electricity Reform in Argentina: Lessons for Developing Countries EP 52  | Non-Technical Summary | PDF Abstract: Argentina was one of the first countries in the world to implement a comprehensive reform of its electricity sector in the recent period. Among developing countries only Chile has had a comparably comprehensive and successful reform. This… Read more

EP 51

Michael Pollitt Electricity Reform in Chile: Lessons for Developing Countries EP 51 | Non-Technical Summary | PDF Abstract: Chile was the first country in the world to implement a comprehensive reform of its electricity sector in the recent period. Among developing countries only Argentina has had a comparably comprehensive and successful reform. This paper traces… Read more

EP 50

Paul Nillesen, Michael Pollitt The Consequences for Consumer Welfare of the 2001-2003 Electricity Distribution Price Review in The Netherlands EP 50  | Non-Technical Summary | PDF Abstract: The Dutch regulatory process for setting the first X-Factors in the electricity distribution sector has gone badly wrong. During two-and-a-half years four different X-Factors were published by the… Read more

EP 45

Stephen Littlechild UK Domestic Energy Contracts: the 28 day rule and experience in Sweden EP 45 | Non-Technical Summary | PDF Abstract: In the UK, domestic customers must be able to terminate energy contracts at 28 days’ notice. This has been seen as a transitional protection for customers and for competition. This paper reviews the… Read more

EP 44

Paul Joskow, Jean Tirole Retail Electricity Competition EP 44 | Non-Technical Summary | PDF Abstract: We explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption. We find the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers are billed… Read more

EP 43

A Denny Ellerman, Florence Dubroeucq Sources of Emission Reductions: Evidence for US SO2 Emissions 1985-2002 EP 43 | Non-Technical Summary | PDF Abstract: An enduring issue in environmental regulation is whether to clean up existing “old” plants or in some manner to bring in new “clean” plants to replace the old. In this paper, a… Read more

EP 42

Karsten Neuhoff, Laurens De Vries Insufficient Incentives for Investment in Electricity Generation EP 42  | Non-Technical Summary | PDF Abstract: In theory, competitive electricity markets can provide incentives for efficient investment in generating capacity. We show that if consumers and investors are risk averse, investment is efficient only if investors in generating capacity can sign… Read more

EP 41

Richard Green Did English Generators Play Cournot? Capacity withholding in the Electricity Pool EP 41 | Non-Technical Summary | PDF Abstract: Electricity generators can raise the price of power by withholding their plant from the market. We discuss two ways in which this could have affected prices in the England and Wales Pool. Withholding low-cost… Read more

EP 40

Luis Olmos, Karsten Neuhoff Definition of a Balancing Point for Electricity Transmission Contracts EP 40  | Non-Technical Summary | PDF Abstract: Electricity transmission contracts allocate scarce resources, allow hedging against locational price differences and provide information to guide investment. Liquidity is increased if all transmission contracts are defined relative to one balancing point, then a… Read more

EPRG 39

Raffaella Mota Comparing Brazil and USA Electricity Performance: What was the Impact of Privatisation? EP 39 | Non-Technical Summary | PDF Abstract: Beginning in 1995 a large proportion of the Brazilian electricity distribution sector went through privatisation and restructuring, whereas privately-owned U.S. utilities did not suffer similar ownership change process. This paper is an empirical… Read more

EP 38

Gert Brunekreeft Regulatory Issues in Merchant Transmission Investment EP 38  | Non-Technical Summary | PDF Abstract: Driven by fear of underinvestment in network assets, merchant investment in electricity transmission networks (MTI) is now legally allowed. Given that MTI is a real possibility, regulators face a new set of questions. After classifying different types of MTI,… Read more

EP 37

Stephen Littlechild Regulated and Merchant Interconnectors in Australia: SNI and Murraylink Revisited EP 37  | Non-Technical Summary | PDF Abstract: This paper examines the history of the various actual and proposed interconnectors between New South Wales and Victoria into South Australia. It covers the period from the earliest proposal for a regulated interconnector to the… Read more

EP 36

Roland Ismer, Karsten Neuhoff Border Tax Adjustments: A Feasible way to Support Stringent Emission Trading EP 36  | Non-Technical Summary | PDF Abstract: CO2 emission certificates internalise effects of fossil fuel consumption on global climate and sea levels. If they are only implemented in some countries, then their effectiveness is limited; Consumption, production and investment… Read more

EP 35

D Giannakis, Tooraj Jamasb, Michael Pollitt Benchmarking and Incentive Regulation of Quality of Service: an Application to the UK Electricity Distribution Utilities EP 35  | Non-Technical Summary | PDF Abstract: Quality of service has emerged as an important issue in post-reform regulation of electricity distribution networks. Regulators have employed partial incentive schemes to promote cost… Read more

EP 34

Janus Bialek Recent Blackouts in US and Continental Europe: Is Liberalisation to Blame? EP 34  | Non-Technical Summary | PDF Abstract: The paper starts with a detailed technical overview of recent blackouts in the US, Sweden/Denmark and Italy in order to analyse common threads and lessons to be learnt. The blackouts have exposed a number… Read more

EP 33

Richard Green Retail Competition and Electricity Contracts EP 33  | Non-Technical Summary | PDF Abstract: Long-term contracts for electricity can counter market power and reduce prices in short-term markets. If electricity retailers face competition, however, companies signing long-term contracts are exposed to the risk that a fall in short-term prices would allow rivals to buy… Read more