ENERGY REGULATORY ECONOMICS

Transcription

1 ENERGY REGULATORY ECONOMICS 1

2 CONTRACT THEORY 2

3 Mechanism Design CONTRACT THEORY - Social choice funcion : mapping from a vecor of characerisiscs o a feasible social sae θ Θ f A - A mechanism is a couple M=(M 1,,M I ) and a funcion g( ) such ha m=(m 1,,m I ) g A - E gc ( ) is a mapping from θ o m 3

4 CONTRACT THEORY Mechanism Design -A mechanism implemens a social choice funcion, for a cerain equilibrium concep, if: Θ 1 x xθ I f( ) A E gc ( ) g( ) M 1 x xm I - Two conceps of equilibrium (c): Dominan and Nash. 4

5 CONTRACT THEORY Mechanism Design - Mechanism: * Direc if M i =Θ i, i=1,,i * Revealing if θ E gc (θ), θ Θ * Implemened by revelaion if i is direc and g(θ)=f(θ), θ Θ 5

6 CONTRACT THEORY Mechanism Design - The Revelaion Principle: Le (g,m) be a mechanism ha implemens he social choice funcion f( ) for he dominan equilibrium concep. Then here exiss a direc mechanism (Ψ,Θ) ha implemens by revelaion f( ) in dominan equlibria 6

7 CONTRACT THEORY Principal-agen model. Adverse selecion example: - Perfec informaion: max ( i -c(q i )) θ i q i - i 0 7

8 CONTRACT THEORY - Complee informaion: f. o. c. q i =q i * c (q i* ) = θ i ( q 2 * >q 1* ) i* = θ i q i * 8

9 CONTRACT THEORY - Assymeric informaion: max {Π [ 1 -c(q 1 )]+(1-π)[ 2 -c(q 2 )]} 1,q 1, 2,q 2 subjec o: θ 1 q 1-1 θ 1 q 2-2 (IC 1 ) θ 2 q 2-2 θ 2 q 1-1 (IC 2 ) θ 1 q (IR 1 ) θ 2 q (IR 2 ) 9

10 CONTRACT THEORY - Assymeric informaion: f.o.c: 1 = θ 1 q = θ 2 (q 2 -q 1 ) (IR 1 binding) (IC 2 binding) q 2 q 1 q 2 = q 2 * q 1 < q 1 * 10

11 CONTRACT THEORY Common properies: The highes ype ges an efficien allocaion Each ype is indifferen beween his conrac and ha of he immediaely lower conrac (wih he excepion of he lowes ype) All ypes ge an informaional ren ha increases wih he ype (wih he excepion of he lowes ype) 11

12 CONTRACT THEORY Common properies: All ypes obain a subefficen allocaion (wih he excepion of he highes ype) The lowes ype obains a zero surplus 12

13 THE CANONICAL MODEL OF REGULATION 13

14 THE CANONICAL MODEL OF REGULATION Assumpions: 1.- Regulaion is subjec o adverse selecion and moral hazard 2.- Coss, producs and prices are verifiable. However, he regulaor can differeniae he differen cos componens 3.- The firm can refuse o produce if he regulaory conrac doesn guaranee a minimum expeced uiliy 14

15 THE CANONICAL MODEL OF REGULATION Assumpions: 4.- The regulaor can make moneary ransfers o he firm 5.- The firm and he regulaor are risk neural wih respec o income 6.- The firm only cares abou is income and effor ^ (U=-ϕ(e), = + R(q)-c( )) 7.- The regulaor faces a shadow cos of public funds (λ>0) 15

16 THE CANONICAL MODEL OF REGULATION Assumpions: 8.- The regulaor s objecive is o maximize social welfare (benevolen-regulaor assumpion) 9.- The regulaor designs he regulaory conrac 16

17 THE CANONICAL MODEL OF REGULATION W S θ s q R q λ EU = (,, ) ( ) (1 + )ˆ + EU = ˆ + R( q) C( β, e, q) ψ( e, s) = ψ( e, s) W= S( θ, s, q) + λrq ( ) (1 + λ)( C( β, e, q) ψ( e, s)) + λeu 17

18 THE CANONICAL MODEL OF REGULATION Expeced social welfare: W=S(θ,s,q) - R(q) - (1+λ) + EU Menu of linear conracs: S(θ,s,q)=S ^ ~ c=β -e + ε U= - ϕ(β-c) 18

19 THE CANONICAL MODEL OF REGULATION Menu of linear conracs: - Under complee informaion: ϕ (e)=1 ó e=e * =ϕ(e * ) ó U(β)=0 ( β) 19

20 THE CANONICAL MODEL OF REGULATION Menu of linear conracs: - Revelaion Principle (revealing direc mechanism: {(β), c(β)}): - Under assymeric informaion Max β β subjec o: { S ( 1 + )( β e + ϕ ( e)) λu ( β )} λ df( β ) U(β) = -ϕ (e(β)), β β Arg max ( % β ) c( % β )) { } % β U(β) 0, β 20

21 THE CANONICAL MODEL OF REGULATION Menu of Linear Conracs: - Under assymeric informaion f.o.c. ϕ ( e * ( β )) = 1 1 λ + λ F ( β ) f ( β ) ϕ (e * ( β )) U * ( β ) = β β ϕ ( e * ~ ( β ) d β 21

22 THE CANONICAL MODEL OF REGULATION Menu of linear conracs: - Transfer funcion: (β) = U * (β) + ϕ(e * (β)) = (β(c)) = T(c) (c,c a ) = a(c a ) - b(c a )(c - c a ) 22

23 THE CANONICAL MODEL OF REGULATION The dichoomy beween Pricing and Cos Reimbursemen Rules: W = S( q) + λ pk( q) qk (1 + λ)( C+ ψ( e)) λu subjec o k U = ψ ( E( β, C, q)) U 0-23

24 THE CANONICAL MODEL OF REGULATION The dichoomy beween Pricing and Cos Reimbursemen Rules: f.o.c. ' pk Ck λ 1 λf( β) ψ ( e) d Lk = = Ce + ( Eβ ) k = 1,..., n p 1 ˆ k + λη k (1 λ) f( β) + dqk λ F( β ) d ψ '( e) = Ce ψ '( e) Eβ 1 + λ f( β) de 24

25 THE CANONICAL MODEL OF REGULATION The dichoomy beween Pricing and Cos Reimbursemen Rules: C = c(β,e,q) can be re-wrien as C = c(ζ(β,e),q) - Pricing rule: Ramsey-Boieux - Cos rule: * Price-cap regulaion for he mos efficien firm * Cos-of-service regulaion for he leas efficien firm 25

26 PRICE REGULATION 26

27 PRICE REGULATION - Inroducion - Price level regulaion - Price srucure regulaion - Regulaion of elecriciy ransmission 27

28 PRICE REGULATION INTRODUCTION Hisory of he opimal prices: - Firs bes: marginal cos (70 s) - Second bes: Ramsey pricing (80 s) - Third bes: Revelaion Principle/ Laffon-Tirole (93) - Fourh bes: Theoreical models under pracical consrains 28

29 PRICE REGULATION INTRODUCTION Desirable properies of applied mechanisms: - Pareo superioriy - Efficiency improvemens Few niches of legal and naural monopolies. (e.g.:ransmission and disribuion of gas and elecriciy) 29

30 PRICE REGULATION INTRODUCTION Regulaion of monopolies is imporan since hey are verically relaed wih compeiive secors. Two basic conceps: -Pricelevel - Price srucure 30

31 REGULATION OF PRICE LEVEL Alernaives: - Cos-of-service regulaion - Price caps: adjusmen facors (RPI, X, ec.) - Yardsick regulaion - Profi sharing - Hybrid regulaion 31

32 REGULATION OF PRICE STRUCTURE Toal-cos disribuion Price bands Resriced flexibiliy - Tariff baske - Average revenue 32

33 REGULATION OF ELECTRICITY TRANSMISSION Types of weighs: Laspeyres chain Paasche Fixed Laspeyres Ideal weighs (Laffon-Tirole) Flexible (average revenue) 33

34 REGULATION OF PRICE STRUCTURE Dispues regarding consumer groups and he regulaed-firm compeiors. A non-consrained monopoly esablishes an efficien price srucure bu a an inefficien level Conracual prices mus coexis wih regulaed prices ogeher wih qualiy regulaion so as o avoid cross subsidies 34

35 REGULATION OF TRANSMISSION Objecives: - Incenives o reduce he disance beween he generaing plans and demanding ceners - Reliabiliy of he frequency and he volage of he sysem - Coordinaion of he generaing saions and provision of soluions in cases of emergency 35

36 Main Problems: REGULATION OF TRANSMISSION - Capaciy use (shor-run). - Opimal invesmen (long-run). Proposal o regulae price level: - Price cap - RPI-X; 0% X 5%. - Regulaory lag (5 years) - Cos of service during each five-year ariff revisions 36

37 REGULATION OF TRANSMISSION Proposal o regulae price srucure: - I considers congesion problems (shor-run) as well as capaciy problems (long-run). - Two-par ariff: Usage charge: i solves congesion problems. Capaciy charge: recovering of capial coss. Rebalancing beween charges: invesmen incenives Transmissions quaniies are used as 37

38 38 REGULATION OF TRANSMISSION Proposal o regulae price srucure: - Model (Vogelsang, 1999): subjec o: ), ( k q c N F q p max + = + + j w j j w i i i w j j j w i i i X F q p F q p ) 1 )( ( 1 1 δ δ k q ( ) N q p p F F w + 1 1

39 39 REGULATION OF TRANSMISSION Proposal o regulae price srucure: - f.o.c.: - Under chained Laspeyres weighs here is convergence o Ramsey prices w q q q c p p q = + µ ε µ = = 1 0 w q q q c p

40 REGULATION OF TRANSMISSION Proposal o regulae price srucure : - Principles: Efficien operaion of he energy marke Efficien invesmen in he sysem Sign-posing of locaional advanages in generaion and disribuion Asse coss recovery Simpliciy and ransparency Poliical feasibiliy 40

41 OTHER TOPICS 41

42 OTHER TOPICS - Verical Inegraion - Liberalizaion - Horizonal Srucure - Regional Srucure - Access-Price Regulaion - Qualiy and Environmenal Regulaion -Ownership 42

43 OTHER TOPICS Verically Inegraed Monopoly Naural Monopoly M Conesable Secor Consumers Marke 1 M Price Regulaion Marke 2 43

44 OTHER TOPICS Naural Monopoly Verical Separaion M Access-Price Regulaion Conesable Secor Consumers Marke 1 Ohers Price Regulaion Marke 2 44

45 OTHER TOPICS Verical Inegraion wih Liberalizaion Naural Monopoly Conesable Secor M M Price Regulaion Access Price Regulaion Ohers Consumers Marke 1 Marke 2 45

46 OTHER TOPICS Topics in Compeiion and Liberalizaion - Cream Skimming - Excess Enry - Compeiion for he Marke - Enry Barriers - Predaory Pricing - Enry Assisance 46

47 OTHER TOPICS Access Pricing: - Under verical separaion: access price is equal o he marginal cos of access (as long as here is a ransference) - Under verical inegraion: * Final price regulaion: access price is equal o he difference of he regulaed final price less he marginal cos in he conesable marke (ECPR: M s incremenal cos for allowing access in erms of los benefis) 47

48 OTHER TOPICS Access Pricing: - Under verical inegraion: * Non/regulaed final price: equal o he cos under verical separaion 48