Quality Dependent Revenues — Incentive Regulation of Quality of Supply

Quality Dependent Revenues — Incentive Regulation of Quality of Supply QUALITY DEPENDENT REVENUES – INCENTIVE REGULATION OF Q UALITY OF S UPPLY Langset, Tore The Norwegian Water Resources and Energy Directorate, Norway info@worldenergy.org 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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Energy & Environment SAGE

Quality Dependent Revenues — Incentive Regulation of Quality of Supply

Energy & Environment , Volume 13 (4-5): 13 – Sep 1, 2002

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Publisher
SAGE Publications
Copyright
© 2002 SAGE Publications
ISSN
0958-305X
eISSN
2048-4070
D.O.I.
10.1260/095830502320939679
Publisher site
See Article on Publisher Site

Abstract

QUALITY DEPENDENT REVENUES – INCENTIVE REGULATION OF Q UALITY OF S UPPLY Langset, Tore The Norwegian Water Resources and Energy Directorate, Norway info@worldenergy.org 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

Journal

Energy & EnvironmentSAGE

Published: Sep 1, 2002

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