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Implementing incentive compatible menus of contracts to regulate electricity distribution investments

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  • Cossent, Rafael
  • Gómez, Tomás

Abstract

Investment regulation constitutes one of the major difficulties in regulating monopolistic activities such as electricity distribution. Information asymmetries and uncertainties over technology and demand especially hamper the evaluation of the efficiency of network investments. In this context, ex-ante regulatory schemes with ex-post corrections such as profit sharing contracts can be particularly useful. Moreover, menu regulation could encourage distribution firms to provide regulators with more accurate information. However, such a mechanism is rarely applied in electricity distribution. In order to facilitate its diffusion, this paper provides clear guidelines to construct incentive compatible menus of profit-sharing contracts and discusses its possible implementation in Spain.

Suggested Citation

  • Cossent, Rafael & Gómez, Tomás, 2013. "Implementing incentive compatible menus of contracts to regulate electricity distribution investments," Utilities Policy, Elsevier, vol. 27(C), pages 28-38.
    • Handle: RePEc:eee:juipol:v:27:y:2013:i:c:p:28-38
    DOI: 10.1016/j.jup.2013.09.002
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Devine, Mel & Lynch, Muireann Á., 2015. "A Menu Approach to Revealing Generator Reliability using a Stochastic Bilevel Mathematical Program," Papers WP518, Economic and Social Research Institute (ESRI).
    2. Ghasemi, Mostafa & Dashti, Reza, 2017. "A risk-based model for performance-based regulation of electric distribution companies," Utilities Policy, Elsevier, vol. 45(C), pages 36-44.
    3. Jesse D. Jenkins & Ignacio J. Pérez-Arriaga, 2017. "Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    4. Satchwell, Andrew J. & Cappers, Peter A., 2018. "Recent developments in competition and innovation for regulated electric utilities," Utilities Policy, Elsevier, vol. 55(C), pages 110-114.
    5. David P. Brown & David E.M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, , vol. 39(5), pages 131-156, September.
    6. Gaspari, Michele & Lorenzoni, Arturo & Frías, Pablo & Reneses, Javier, 2017. "Integrated Energy Services for the industrial sector: an innovative model for sustainable electricity supply," Utilities Policy, Elsevier, vol. 45(C), pages 118-127.
    7. Mirzaei, Mohammad Javad & Dashti, Reza & Kazemi, Ahad & Amirioun, Mohammad Hassan, 2015. "An asset-management model for use in the evaluation and regulation of public-lighting systems," Utilities Policy, Elsevier, vol. 32(C), pages 19-28.
    8. Bovera, Filippo & Delfanti, Maurizio & Fumagalli, Elena & Lo Schiavo, Luca & Vailati, Riccardo, 2021. "Regulating electricity distribution networks under technological and demand uncertainty," Energy Policy, Elsevier, vol. 149(C).
    9. Brown, David P. & Sappington, David E. M., 2018. "Employing Simple Cost-Sharing Policies to Motivate the Efficient Implementation of Distributed Energy Resources," Working Papers 2018-9, University of Alberta, Department of Economics.

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    More about this item

    Keywords

    Investment regulation; Menu of contracts; Profit-sharing; Electricity distribution;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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