When Does Electricity Price Cap Regulation Become Distortionary?

Simshauser, Paul

doi:10.1111/1467-8462.12062

Cited by 9 publications

(10 citation statements)

References 42 publications

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“…Nelson et al (2018) extended the Victorian analysis by focusing on non-vulnerable Standing Offer customers in Victoria and found they consumed 18% less than households on discounted products. The analysis was consistent with the premise of perceived gains from switching (Flores & Waddams Price, 2013, IPART, 2013Simshauser, 2014;Littlechild, 2014;He & Reiner, 2017). That is, households may maximise welfare by remaining disengaged and on a higher-priced Standing Offer.…”

Section: 3supporting

confidence: 72%

“…Households are voters, whereas Commercial & Industrial customers are not; 3. Soon after deregulation the underlying cost of electricity increased sharply in Great Britain (Littlechild, 2017) and the NEM (Simshauser, 2014).…”

Section: 1mentioning

confidence: 99%

“…When contestability commences in the mass market segment of a retail electricity market 1 , prices commence a natural drift from a regulated and uniform (two-part) tariff to discriminatory pricesthis arises in energy markets due to the policy design of vesting incumbent retailers with a default tariff, and contestability arising via rival retailer discounts (see Giulietti et al 2005;IPART, 2013;Simshauser, 2014;Waddams Price & Zhu, 2015;Littlechild, 2016;Waddams Price & Zhu, 2016;He & Reiner, 2017;Nelson et al 2018;Flores & Waddams Price, 2018). A market progression of rival entry, greater product complexity and price dispersion is common in former regulated capital-intensive monopoly industries such as telecommunications, airlines and energy as Borenstein & Rose (1994), Dana (1998Dana ( , 1999b, Levine (2002), Baumol & Swanson (2003), Littlechild (2014) and Simshauser & Whish-Wilson (2017) explain.…”

Section: Introductionmentioning

confidence: 99%

“…See Littlechild (2014) for details. See also Giulietti et al (2005), Flores & Waddams Price (2013), IPART (2013), Simshauser (2014), Littlechild (2014), Waddams Price & Zhu (2015), Littlechild (2016), Waddams Price & Zhu (2016), He & Reiner (2017), Flores & Waddams Price (2018).…”

Section: Introductionmentioning

confidence: 99%

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Price discrimination and the modes of failure in deregulated retail electricity markets

Simshauser

2018

Energy Economics

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In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices. The State of Queensland implemented Full Retail Contestability in 2007, but held a regulated price cap in place until 2016, when it finally deregulated its residential electricity market. Almost simultaneously, the two jurisdictions that pioneered retail price deregulation, Great Britain and Victoria, were questioning their prior policy decision. Queensland makes for a fascinating case study because Southeast Queensland comprises a fully deregulated retail market while Regional Queensland is a regulated monopoly-with common input costs across both zones. Consequently, a regulated monopoly with a uniform tariff and 640,000 customers forms a very large control group, which can be directly compared to the competitive market of more than 1.3 million customers-making such analysis globally unique. Analysis of Queensland market conditions concludes the policy is welfare enhancing. To be clear, rising electricity prices are a problem, but price discrimination is not. The deregulated competitive market is, perhaps unsurprisingly, better at regulating the overall average tariff and consumer welfare has been enhanced by $184 million per annum-with some consumer segments very materially better off. However, certain modes of failure remain, viz. an inter-consumer misallocation problem and lack of transparency vis-à-vis the anchoring of discounts-known as the "discounts off what?" problem. Resolving the inter-consumer misallocation problem is relatively straight forward via ensuring energy retailers (voluntarily) move vulnerable customers onto a Benchmark-equivalent or suitably discounted tariff. Due to the non-linearity of tariffs and the rising mix of discrete metered loads, the latter can be best solved by producing a weighted average of Standing Offers, and using this as the benchmark. Cambridge Working Papers in Economics Faculty of Economics www.eprg.group.cam.ac.uk Price discrimination and the modes of failure in deregulated retail electricity markets EPRG Working Paper 1827

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Section: 3supporting

confidence: 72%

Section: 1mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Price discrimination and the modes of failure in deregulated retail electricity markets

Simshauser

2018

Energy Economics

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“…However, there is a detailed literature outlining why any regulated price caps should be aligned with the Long-Run Marginal Cost (LRMC) of supplying electricityand the counterfactual to this is 'boom bust scenarios at the retail level'. Simshauser (2012) and Yarrow (2008) articulate these arguments in great detail and so we do not propose to replicate them here.…”

Section: Policy Implicationsmentioning

confidence: 91%

Reconciling Energy Prices and Social Policy

Nelson¹,

Reid²

2014

The Electricity Journal

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The regulation of retail electricity prices has been a highly contentious energy policy issue in Australia, with industry arguing for its removal on the one hand and welfare groups arguing for its retention on the other. Yet rarely is the most basic question asked-are 'market contracts' delivering benefits to customers? In this article, regulated standing supply offers in NSW, which are set at long-run economic levels, are contrast with market contracts across households of differing consumption levels. Our analysis demonstrates that the vast majority of households would be better off on market contracts even after accounting for fees and charges applied for late payments and other contract breaches. We then conducted a survey of financial assistance providers to determine whether consumers in financial hardship were being encouraged to utilise market contracts. Our survey results show that most providers of financial assistance do not recommend market contracts primarily due to inadequate information. We conclude that the energy industry and peak consumer groups need to move beyond the ideological divide related to the merits of regulating electricity prices and focus on the provision of relevant information that allows consumers, particularly consumers in hardship, to minimise their energy costs in the competitive market.

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