IDEAS home Printed from https://ideas.repec.org/a/aen/journl/ej37-4-menezes.html
   My bibliography  Save this article

Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses

Author

Listed:
  • Joisa Dutra, Flavio M. Menezes, and Xuemei Zheng

Abstract

This paper examines the incentives embedded in different regulatory regimes for investment by utilities in energy efficiency programs that aim to reduce network losses. In our model, a monopolist chooses whether to undertake an investment in energy efficiency, which is not observable by the regulator. We show that, in equilibrium, the monopolist chooses to exert positive effort more often under price cap regulation than under no regulation or mandated target regulation and that she exerts no effort under rate of return regulation. This result contrasts with an extensive literature that focuses on end-user energy conservation and shows that price caps are ineffective for achieving energy efficiency as utilities have an incentive to maximize sales volume. Thus, policies that are designed to promote demand-side energy conservation may diminish the utilities' incentives to pursue supply-side energy efficiency through minimizing network losses.

Suggested Citation

  • Joisa Dutra, Flavio M. Menezes, and Xuemei Zheng, 2016. "Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej37-4-menezes
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2802
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. ARTHUR Rosenfeld & CELINA Atkinson & JONATHAN Koomey & ALAN Meier & ROBERT J. Mowris & LYNN PRICE, 1993. "Conserved Energy Supply Curves For U.S. Buildings," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 45-68, January.
    2. Toshi H. Arimura, Shanjun Li, Richard G. Newell, and Karen Palmer, 2012. "Cost-Effectiveness of Electricity Energy Efficiency Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Wirl, Franz, 1995. "Impact of Regulation on Demand Side Conservation Programs," Journal of Regulatory Economics, Springer, vol. 7(1), pages 43-62, January.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    5. Eto, Joseph & Stoft, Steven & Belden, Timothy, 1997. "The theory and practice of decoupling utility revenues from sales," Utilities Policy, Elsevier, vol. 6(1), pages 43-55, March.
    6. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    7. Parry, Ian W.H. & Evans, David & Oates, Wallace E., 2014. "Are energy efficiency standards justified?," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 104-125.
    8. Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
    9. Timothy J. Brennan, 2013. "Energy Efficiency Policy Puzzles," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    10. Marino, Anthony M. & Sicilian, Joseph, 1988. "The incentive for conservation investment in regulated utilities," Journal of Environmental Economics and Management, Elsevier, vol. 15(2), pages 173-188, June.
    11. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
    12. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
    13. Kalambe, Shilpa & Agnihotri, Ganga, 2014. "Loss minimization techniques used in distribution network: bibliographical survey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 184-200.
    14. Paul L. Joskow, 1989. "Regulatory Failure, Regulatory Reform, and Structural Change in the Electrical Power Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 125-208.
    15. Timothy Brennan, 2010. "Decoupling in electric utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 49-69, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Flavio Menezes & Xuemei Zhang, 2016. "Regulatory Incentives for a Low-Carbon Electricity Sector in China," Discussion Papers Series 562, School of Economics, University of Queensland, Australia.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Flavio Menezes & Joisa Dutra & Xuemei Zheng, 2013. "Energy Efficiency and Price Regulation," Discussion Papers Series 495, School of Economics, University of Queensland, Australia.
    2. Gerlach, Heiko & Zheng, Xuemei, 2018. "Preferences for green electricity, investment and regulatory incentives," Energy Economics, Elsevier, vol. 69(C), pages 430-441.
    3. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    4. Nori Tarui, 2017. "Electric utility regulation under enhanced renewable energy integration and distributed generation," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(3), pages 503-518, July.
    5. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    6. Arlan Brucal & Nori Tarui, 2018. "Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare," Working Papers 201814, University of Hawaii at Manoa, Department of Economics.
    7. Arlan Brucal & Nori Tarui, 2018. "Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare," Working Papers 201814, University of Hawaii at Manoa, Department of Economics.
    8. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    9. Brucal, Arlan & Tarui, Nori, 2021. "The effects of utility revenue decoupling on electricity prices," Energy Economics, Elsevier, vol. 101(C).
    10. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
    11. Laura Abrardi & Carlo Cambini, 2014. "Tariff Regulation with Energy Efficiency Goals," IEFE Working Papers 65, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    12. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    13. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
    14. Richard A. Michelfelder, 2015. "Electric utility regulation and investment in green energy resources," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(1-2), pages 48-64, April.
    15. Michelfelder, Richard A. & Ahern, Pauline & D'Ascendis, Dylan, 2019. "Decoupling impact and public utility conservation investment," Energy Policy, Elsevier, vol. 130(C), pages 311-319.
    16. David P. Brown & David E. M. Sappington, 2017. "Optimal policies to promote efficient distributed generation of electricity," Journal of Regulatory Economics, Springer, vol. 52(2), pages 159-188, October.
    17. Richard G. Newell & Juha Siikamäki, 2014. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(4), pages 555-598.
    18. Arlan Brucal & Michael Roberts, 2015. "Can Energy Efficiency Standards Reduce Prices and Improve Quality? Evidence from the US Clothes Washer Market," Working Papers 2015-5, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    19. Eto, J. & Stoft, S. & Kito, S., 1998. "DSM shareholder incentives: recent designs and economic theory," Utilities Policy, Elsevier, vol. 7(1), pages 47-62, March.
    20. Guerriero, Carmine, 2006. "Dependent Controllers and Regulation Policies: Theory and Evidence," Privatisation Regulation Corporate Governance Working Papers 12204, Fondazione Eni Enrico Mattei (FEEM).

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:ej37-4-menezes. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.