QUALITY DEPENDENT REVENUES – INCENTIVE REGULATION OF Q UALITY OF S UPPLY Langset, Tore The Norwegian Water Resources and Energy Directorate, Norway email@example.com 1. INTRODUCTION In ab sence of an efficient m arket sy stem for tr ansmission and distribution o f e lectricity the regulators focus on efficiency and productivity i n th e generating business. Through different i ncentive based systems the transmission and distribution co mpanies are encouraged to r educe costs to p revent unnecessary use of r esources in th e sector, and to pr epare for lo wer t ariffs. C ommon for m ost of t he regulation sy stems is that a reduction in firm specific costs will lead to higher profits for a longer o r shorter period of t ime. P rofit m aximising firms m ay regard c ustomer specific costs as externalities when optimising their strategic decisions. Due to t his fact, postponed investments and reduced maintenance may over t ime le ad to t oo lo w quality o f su pply. The l ack of coincidence between firm sp ecific and socio-economic optimum c an be reduced by forcing t he companies to ta ke
Energy & Environment – SAGE
Published: Sep 1, 2002
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