The Governance of Network Industries

The Governance of Network Industries

Institutions, Technology and Policy in Reregulated Infrastructures

Studies in Evolutionary Political Economy series

Edited by Rolf W. Kunneke, John Groenewegen and Jean-François Auger

Infrastructures are subject to substantial readjustments of governance structures, often labeled as liberalization, privatization or re-regulation. This affects all traditional infrastructure sectors including communications, energy, transport and water. This study highlights and illustrates some of the major challenges for readjusting the governance of network industries from an economic, institutional, political and technological perspective. The three parts of the book address the institutional design of infrastructures, the role of technology in different sectors and actor behaviour.

Chapter 3: Creating Institutional Arrangements that Make Markets Work: The Case of Retail Markets in the Electricity Sector

Jean-Michel Glachant

Subjects: economics and finance, industrial economics, institutional economics, public sector economics


Jean-Michel Glachant INTRODUCTION Over the course of the past 15 years, the electricity industry has experienced a series of remarkable innovations—in particular, the creation of open markets. Wholesale markets come first, then retail. These markets replaced the vertically integrated and quasi-integrated structures that had prevailed mostly during the second half of the twentieth century. Few economists truly anticipated or forecast this revolution in electricity markets. The notable exception was Paul L. Joskow and Richard Schmalensee. Their book Markets for Power (1983) anticipated the opening of the English wholesale market in 1990 by a full seven years. The notion of a retail market for electricity had even less currency than that of a wholesale market. Stephen C. Littlechild, another economist, and British regulator from 1989 to 1998, merits being designated as the inventor of the retail electricity market. Previously this concept was so novel, so unfamiliar, that it is nowhere to be found in the White Paper (United Kingdom, Secretary of State for Energy 1988), with which the British government prepared the way for the electricity reform, nor does it occur anywhere in the Electricity Act 1989 (United Kingdom, Ministry of Justice 1989). At that time only a wholesale market for generators, distributors and large industrial users was envisaged. However, the most salient feature of this innovation was not simply the introduction of markets into the industry, but rather that their creation required so much institutional activism. The competitive reforms of the electricity industry literally consisted of elaborating gigantic and...

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