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Competition in European Electricity Markets

A Cross-country Comparison

Edited by Jean-Michael Glachant and Dominique Finon

This book focuses on the diversity of electricity reforms in Western Europe, drawing evidence from ten European Union memberstates plus Norway and Switzerland as associate members. The contributors analyse the various ways of introducing competition in the European electricity industries, and consider both the strategies of electricity companies and their behaviour in electricity marketplaces. They also offer an explanation of the differences of reforms by the institutions and the industrial structures of each country which shape the types of marketrules, industrial restructuring and public service regulations which have been adopted.
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Chapter 4: Strategic Pricing for Network Access: Evidence from Electricity Distribution in England and Wales

Christoph Riechmann


1 Christoph Riechmann INTRODUCTION Network access is an essential prerequisite for the constitution of competitive retail markets in network industries, especially where networks exhibit characteristics of natural monopoly (electricity and gas in particular). Fears are that network owners exploit their monopoly position either to foreclose downstream retail markets or to extract monopoly rents through network access charges. Different regulatory options have been discussed to prevent such behaviour: price regulation aims at limiting the profits of network operators in the network business (partial price-cap approach) or in the network business and in related competitive activities2 (global pricecap approach). Legal unbundling of competitive activities and network operations (in conjunction with price regulation of network activities) aims at breaking joint interests of network operators with their related competitive business segments. This chapter extends a more formal analysis of possible strategic behaviour (Riechmann, 2000) and also explores technical limitations to such possible action due to the inability of incumbent network operators to discriminate between customers supplied by competitors and their own retail business. We outline the institutional framework of electricity retail competition in England and Wales which serves as reference for the following theoretical considerations and empirical investigations. In the third section we briefly review recent literature on the regulation of network access. We then address the incentives for strategic discrimination of network access charges. Next are assessed opportunities and limitations to discrimination of network access charges in practice for the case of electricity distribution in England and Wales. Finally we...

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