Designing regulatory contracts for the operators of power transmission networks has become a critical policy issue in the United States. In this paper, a regulatory contract is proposed that induces network operators to optimally expand the grid, which is crucial for the emergence of efficient wholesale power markets, while also satisfying the other traditional regulatory objectives. The proposed mechanism is readily implementable, since it builds on a contract currently in place in England and Wales.
ArmstrongM.CowanS.VickersJ. (1994). Regulatory Reform: Economic Analysis and British Experience. Cambridge, MA:: The MIT Press.
2.
Baldick R, and E. Kahn (1993). “Network costs and the regulation of wholesale competition in electric power.” Journal of Regulatory Economics5(4): 367-384.
3.
BohnR.KlevorickA.StalonC. (1999). “Second report on market issues in the California power exchange energy markets.” Prepared for the Federal Energy Regulatory Commission, by the Market Monitoring Committee of the California Power Exchange. March.
4.
BorensteinS.BushnellJ.StoftS. (1997). “The competitive effects of transmission capacity in a deregulated electricity industry.” Mimeo, University of California Energy Institute, April.
5.
BushnellJ.StoftS. (1997). “Improving financial incentives for electric grid investment.” Resource and Energy Economics19: 85-108.
6.
CardellC.HittC.HoganW. (1997). “Market power and strategic interaction in electricity networks.” Resource and Energy Economics19 (October): 109-137
7.
ChaoH-P.PeckS. (1996). “A market mechanism for electric power transmission.” Journal of Regulatory Economics10(1): 25-59.
8.
GloverJ.SarmaM. (1993). Power System Analysis and Design. Boston, MA: PWS Publishing Company.
9.
GreenR. (1997). “Transmission pricing in England and Wales.” Mimeo, Department of Applied Economics, Cambridge University, June.
10.
JoskowP. (1997). “Restructuring, competition, and regulatory reform in the U.S. electricity sector.” The Journal of Economic Perspectives11(3): 119-138.
11.
JoskowP.SchmalenseeR. (1983). Markets for Power: An Analysis of Electric Utility Deregulation. Cambridge, MA:: MIT Press.
12.
KirbyB.HirstE. (1999). “Maintaining transmission adequacy in the future.” The Electricity Journal (November): 62-72.
13.
LaffontJ.-J.TiroleJ. (1993). A Theory of Incentives in Procurement and Regulation. Cambridge, MA:: The MIT Press.
14.
MacKie-MasonJ.VarianH.R. (1994). “Pricing the Internet.” Mimeo, Department of Economics, University of Michigan, February.
15.
NasserT.-O. (1998). “Congestion pricing and network expansion.” Policy Research Paper 1896, Washington, D.C.: The World Bank. March.
16.
NasserT.-O. (1997). Imperfect Markets for Power: Competition and Residual Regulation in the Electricity Industry. PhD thesis, Department of Economics, Massachusetts Institute of Technology, Cambridge, MA. June.
17.
NewberyD.PollittM.G. (1997). “The restructuring and privatization of the CEGB—Was it worth it?” Journal of Industrial Economics XLV(3): 269-303.
18.
Offer (1995). “The transmission price control review of the national grid company.” Consultation Paper, Office of Electricity Regulation, UK. November.
19.
OrenS. (1997). “Economic inefficiency of passive transmission rights in congested electricity systems with competitive generation.” The Energy Journal18(1): 63-84.
20.
SchweppeF.CaramanisMTaborsR.BohnR. (1988). Spot Pricing of Electricity. Norwell, MA: Kluwer.
21.
TaylorA.MannR. (1983). Advanced Calculus, third edition. John Wiley and Sons.
22.
VogelsangI. (1999). “Price regulation for independent transmission companies.” Mimeo, Department of Economics, Boston University. November.
23.
WasserstromR.PalmerN.ReiderS. (1999). “Crossed wires: Electric power deregulation leaves holes in the nation's high voltage transmission system.” Consultant's report, The Terra Group. April
