Dynamics of Price Regulation

Biglaiser, Gary; Riordan, Michael

doi:10.2307/2696357

Cited by 92 publications

(54 citation statements)

References 24 publications

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“…If this interplay is anticipated well by the regulator's choice of X and/or the profit-sharing parameter s the long period of commitment could be extended somewhat. Biglaiser and Riordan (2000) show that if the long period between price cap reviews is too short then this can lead to underinvestment. Thus, extending this period is likely to be beneficial (although, according to Biglaiser and Riordan, the period can also be too long).…”

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confidence: 99%

Electricity Transmission Pricing and Performance-based Regulation

Vogelsang

2006

The Energy Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Performance-based regulation (PBR) is influenced by the Bayesian and non-Bayesian incentive mechanisms. While Bayesian incentives are impractical, the insights from their properties can be combined with practical non-Bayesian mechanisms for application to transmission pricing. This combination suggests an approach based on the distinction between ultra-short, short and long periods. Ultra-short periods are marked by real-time pricing of point-to-point transmission services. Pricing in short periods involves fixed fees and adjustments via price-cap formulas or profit sharing. Productivity-enhancing incentives have to be tempered by long-term commitment considerations, so that profit sharing may dominate pure price caps. Investment incentives require long-term adjustments based on rate-of-return regulation with a "used and useful" criterion. Terms of use: Documents in EconStor mayJEL Code: L5, L9.

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confidence: 99%

Electricity Transmission Pricing and Performance-based Regulation

Vogelsang

2006

The Energy Journal

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“…For example, regulated companies tend to invest directly after a regulatory review in order to maximize payoff (Sweeney, 1981), i.e., the firms enjoy excess profits until regulators reduce prices to a level consistent with the new conditions. Biglaiser and Riordan (2000) show that under price caps, investment in cost reduction is more likely to occur in the early years of a regulatory cycle, and that the incentives for replacement investments increase under dynamic price cap regulation as long as newer equipment leads to technical progress. Pint (1992) shows that when regulatory hearings occur at fixed intervals and the timing is known in advance, under price cap regulation, companies plan their capital choices across the regulatory cycle.…”

Section: Timing Investment Decisionsmentioning

confidence: 98%

Regulation and Investment Incentives in Electricity Distribution: An Empirical Assessment

Cullmann

Nieswand

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe analyze the effects of an incentive based regulatory scheme with revenue caps on the investment behaviors and decisions of 109 electricity distribution companies operating in Germany in 2006-2012. We hypothesize that Germany's implementation of incentive regulation in 2009 has a negative impact on total investment, and that firms increase their investments in the base year. We build a model that controls for both firm-specific heterogeneity and ownership structure and test it with the German data. The results show that investments increase after incentive regulation, and that the institutional constraints used to determine the revenue caps influence the distribution companies' investment decisions. We also note that the investments increase in the base year when the rate base is determined for the following regulatory period. We conclude that a comprehensive assessment of Germany's electricity distribution companies' investment decisions and behaviors should account for firm specific heterogeneity. It should further include all institutional aspects of incentive regulation to design incentives that will foster investments in the region's energy networks.JEL-Classification: L94, L51, L98

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“…Cabral and Riordan (1989) demonstrated that incentive regulation has a positive effect in costreducing investments. Biglaiser and Riordan (2000) concluded that this effect would depend on the length of the regulatory cycle and is more likely to occur in the early years of a new cycle. Other studies found that this relationship is subject to the level of the price-cap, meaning that a low price-cap would provide little incentive for cost-reducing investments (Nagel and Rammerstorfer, 2008;Roques and Savvas, 2009).…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

Costa¹,

Bento²,

Marques³

2017

The Energy Journal

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This paper analyzes the implementation of new technologies in network industries through the development of a suitable regulatory scheme. The analysis focuses on Smart Grid (SG) technologies which, among others benefits, could save operational costs and reduce the need for further conventional investments in the grid. In spite of the benefits that may result from their implementation, the adoption of SGs by network operators can be hampered by the uncertainties surrounding actual performances. A decision model has been developed to assess the firms' incentives to invest in "smart" technologies under different regulatory schemes. The model also enables testing the impact of uncertainties on the reduction of operational costs, and of conventional investments. Under certain circumstances, it may be justified to support the development and early deployment of emerging innovations that have a high potential to ameliorate the efficiency of the electricity system, but whose adoption face many uncertainties.

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Dynamics of Price Regulation

Cited by 92 publications

References 24 publications

Electricity Transmission Pricing and Performance-based Regulation

Electricity Transmission Pricing and Performance-based Regulation

Regulation and Investment Incentives in Electricity Distribution: An Empirical Assessment

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

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