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Hauteclocque, Adrien de; Perez, Yannick --- "Electricity Regulation" [2012] ELECD 440; in Van den Bergh, J. Roger; Pacces, M. Alessio (eds), "Regulation and Economics" (Edward Elgar Publishing, 2012)

Book Title: Regulation and Economics

Editor(s): Van den Bergh, J. Roger; Pacces, M. Alessio

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847203434

Section: Chapter 8

Section Title: Electricity Regulation

Author(s): Hauteclocque, Adrien de; Perez, Yannick

Number of pages: 29

Extract:

8 Electricity regulation
Adrien de Hauteclocque and Yannick Perez*



1. INTRODUCTION

Until the late 1970s, the organization of electricity markets around the world
was largely characterized by natural monopolies integrated both horizontally
and vertically. This traditional organization was based on the full integration
of generation and transport activities, in general completed by a monopoly in
retail supply at the local or regional level with regulated prices. The shift of
regulatory regimes towards market-based competition has been widely
discussed (Armstrong, Cowan and Vickers, 1994; Crew and Kleindorfer,
1986) and largely implies, if not a retreat, at least a redefinition of the role of
the state and its tools for action (Jamasb, 2006). The technological specifici-
ties of the electricity industry largely explained the recourse in the former
period to both horizontal and vertical integration. The technical needs to coor-
dinate each and every step of the value chain and the alleged natural monop-
oly characteristics of electricity transmission and distribution networks came
together to justify the organization of electricity activities within centralized
firms holding an exclusive right to supply. Technology did not allow for the
measurement and allocation of costs and benefits among different trading part-
ners at reasonable costs, which de facto justified internalizing transactions
within unified entities. This is thus the transactional complexity of electricity
trade which for decades led to the organization of power transactions inter-
nally and to the centralization of decision making within integrated monopoly,
administratively regulated by the state under sector-specific rules (Hunt,
...