When Does Electricity Price Cap Regulation Become Distortionary?
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Australia has a deregulated national wholesale electricity market, a national network regulatory framework, but inconsistent state-based regulated retail price caps in workably competitive markets. This article finds that asymmetric information and the complexity of energy markets means that a regulator, no matter how wise and well resourced, could never be expected to produce reliable estimates of competitive prices. If regulation represents a policy constraint, relying on long-run concepts rather than short-run prices is least damaging to the flow of capital and non-linear pricing.
The Australian Economic Review
© 2014 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research. This is the peer reviewed version of the following article: When Does Electricity Price Cap Regulation Become Distortionary?, Australian Economic Review, Vol. 47 (3), pp. 304-323, 2014 which has been published in final form at http://dx.doi.org/10.1111/1467-8462.12062. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving (http://olabout.wiley.com/WileyCDA/Section/id-828039.html)