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Employing gain-sharing regulation to promote forward contracting in the electricity sector

Author

Listed:
  • David P. Brown

    (University of Alberta)

  • David E. M. Sappington

    (University of Florida)

Abstract

We examine the reductions in electricity procurement costs that can be secured when gain-sharing regulation is employed to induce a regulated load serving entity (LSE) to undertake forward contracting despite associated political risk. We identify arguably plausible conditions under which a modest degree of gain sharing can induce an LSE to undertake forward contracting that substantially reduces the LSE’s procurement costs, to the benefit of retail consumers.

Suggested Citation

  • David P. Brown & David E. M. Sappington, 2023. "Employing gain-sharing regulation to promote forward contracting in the electricity sector," Journal of Regulatory Economics, Springer, vol. 63(1), pages 30-56, April.
    • Handle: RePEc:kap:regeco:v:63:y:2023:i:1:d:10.1007_s11149-022-09456-5
    DOI: 10.1007/s11149-022-09456-5
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    More about this item

    Keywords

    Forward contracting; Incentive regulation; Gain sharing;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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