Competition Policy versus Regulation in Electricity Systems - Determining the Boundary

Abstract

Competition policy is typically intended to protect competition where workable competition is possible. Conversely regulation can either preclude competition or can act as a substitute for competition when workable competition is impossible. Both types of policy can have a significant impact on investment which in turn affects the evolution (or demise) of competition. This means competition and regulation settings can affect each other and potentially their own rationale. Electricity systems have particular competition and regulation issues and challenges and industry changes such as New Zealand's vertical integration of generation and energy retailing present additional complexities.In this seminar Richard Meade argues that there is no single optimal boundary between competition policy and regulation in electricity systems. Instead any such boundary will evolve over time reflecting a myriad of factors such as institutional endowments industry reform paths the extent of state ownership and changing technologies. Importantly the optimal boundary will differ from that prevailing in other network industries such as telecommunications suggesting that appropriate competition and regulatory policies will differ across industries.