The effects of average revenue regulation on electricity transmission investment and pricing

Isamu Matsukawa

Energy Economics, 2008, vol. 30, issue 3, pages 696-714

Abstract: This paper investigates the long-run effects of average revenue regulation on an electricity transmission monopolist who applies a two-part tariff comprising a variable congestion price and a non-negative fixed access fee. A binding constraint on the monopolist's expected average revenue lowers the access fee, promotes transmission investment, and improves consumer surplus. In a case of any linear or log-linear electricity demand function with a positive probability that no congestion occurs, average revenue regulation is allocatively more efficient than a Coasian two-part tariff if the level of capacity under average revenue regulation is higher than that under a Coasian two-part tariff.

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Related works:
Working Paper: The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing (2005)
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