Deregulation of utility industries and roles of simulation

Abstract

The authors describe why and how different types of simulations can be used to understand and support the challenges of utility deregulation. They present an overview of liberalization and deregulation efforts in three utility markets-electricity, natural gas, and drinking water-and describe the main challenges and opportunities for regulators and business managers. A general classification of seven different types of simulation is presented, including market simulations, policy simulations, dynamic business simulations, capability simulations, day-in-a-life simulations, performance simulations, and gaming simulations. The authors reflect on the role of these simulations for utility deregulation and give examples.About a decade ago, electricity, natural gas, and water were produced and distributed by public monopolies in many countries around the world (e.g., in the new EU member states, this is still the case). However, since the late 1980s, a market view has pervaded our thinking about public utilities and has had far-reaching consequences on how utilities are owned, managed, operated, and deregulated. Since then, governments in Europe and the United States have steadily implemented guidelines and reforms aiming to rationalize the "historically grown, but inefficient structures" of public ownership and regional monopolies. By and large, these reforms are characterized as liberalization (i.e., from monopolies to open markets), as privatization (i.e., from public to private ownership), as deregulation (i.e., lowering legal and formal barriers to competition), and as reregulation (i.e., the implementation of regulatory regimes that can safeguard public values and create a level playing field; see

Gaming Research in Policy and Organization

“…We mention here a number of summarizing books: Geurts et al (2000); Geurts, Joldersma, and Roelofs (1998); Duke and Geurts (2004); Klabbers (2006); Mayer and Veeneman (2003); de Caluwé, Hofstede, and Peters (2008). Directly relevant articles in the past years in Simulation & Gaming are Hofstede and Pedersen (2000); Joldersma & Geurts (1998); Rouwette, Vennix, and Thijssen (2000); Kuit, Mayer, and de Jong (2005); Wenzler, Kleinlugtenbelt, and Mayer (2005); P. Bots and van Dalen (2007); Mayer (2009); Wenzler (2009); P.…”