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Extended Price Cap Mechanism for Efficient Transmission Expansion under Nodal Pricing

Makoto Tanaka ()

Networks and Spatial Economics, 2007, vol. 7, issue 3, 257-275

Abstract: This paper examines the regulatory incentive mechanisms for efficient investment in the transmission network under the ISO and Gridco institutional framework. By considering a new element associated with power flow, we develop an extended price cap mechanism that can properly internalize technological externalities among transmission lines. We show that the new mechanism can induce the Gridco to achieve the long-term optimal capacity expansion in the presence of technological externalities, while the ISO continuously promotes efficient capacity utilization in the short run under nodal pricing. Copyright Springer Science+Business Media, LLC 2007

Keywords: Nodal pricing; Transmission capacity; Profit constraint; Incentive regulation; Price cap (search for similar items in EconPapers)
Date: 2007
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