Conditional yardstick competition in energy regulation

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dc.contributorAalto-yliopistofi
dc.contributorAalto Universityen
dc.contributor.authorKuosmanen, Timo
dc.contributor.authorJohnson, Andrew L.
dc.contributor.departmentDepartment of Information and Service Management
dc.contributor.departmentTokyo Institute of Technology
dc.date.accessioned2020-10-16T08:09:35Z
dc.date.available2020-10-16T08:09:35Z
dc.date.embargoinfo:eu-repo/date/embargoEnd/2023-01-01
dc.date.issued2020
dc.description.abstractYardstick competition is a regulation regime that forces local monopolies to compete against a variable cost or total cost benchmark. The variable cost benchmark ignores the fixed capital, creating a strong incentive to over-invest, whereas the total cost benchmark assumes all costs to be variable, ignoring the investment risk. We propose theoretical, methodological, and operational advances to increase applicability of yardstick competition in energy regulation. In the proposed conditional yardstick regime capital is treated as a fixed input, and the local monopolies compete against the variable cost conditional on the fixed input. We develop a benchmarking method that can handle multiple outputs, heterogeneity, and shape constraints to ensure incentive compatibility. We discuss the real-world application of the proposed regime to the Finnish electricity distribution firms in 2016-2023. We argue that smarter regulation of network industries can contribute to lower risk premiums and help to achieve win-win solutions both in terms of reliability and affordability.en
dc.description.versionPeer revieweden
dc.format.mimetypeapplication/pdf
dc.identifier.citationKuosmanen , T & Johnson , A L 2020 , ' Conditional yardstick competition in energy regulation ' , Energy Journal , vol. 41 , pp. 67-92 . https://doi.org/10.5547/01956574.42.S12.TKUOen
dc.identifier.doi10.5547/01956574.42.S12.TKUO
dc.identifier.issn0195-6574
dc.identifier.otherPURE UUID: a5bd32a2-4cea-4d73-b079-91d552858658
dc.identifier.otherPURE ITEMURL: https://research.aalto.fi/en/publications/a5bd32a2-4cea-4d73-b079-91d552858658
dc.identifier.otherPURE LINK: http://www.scopus.com/inward/record.url?scp=85090479349&partnerID=8YFLogxK
dc.identifier.otherPURE FILEURL: https://research.aalto.fi/files/52076697/Conditional_Yardstick_EJSI_final_20200615.pdf
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/46981
dc.identifier.urnURN:NBN:fi:aalto-202010165878
dc.language.isoenen
dc.publisherInternational Association for Energy Economics
dc.relation.ispartofseriesEnergy Journalen
dc.relation.ispartofseriesVolume 41en
dc.rightsopenAccessen
dc.subject.keywordElectricity distribution
dc.subject.keywordHeterogeneity
dc.subject.keywordIncentive regulation
dc.titleConditional yardstick competition in energy regulationen
dc.typeA1 Alkuperäisartikkeli tieteellisessä aikakauslehdessäfi
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