Liberalised Energy Markets — Do We Need Re-Regulation?

Against the background of energy market reforms and recent electricity market incidents and failures, the paper recalls the principles of economic regulation and highlights the methodological difficulties of any ex-post regulatory impact analysis. It synthesises theoretical contributions on regulation and describes the regulatory toolbox, with reference to the electricity market. After definitions and a discussion of the rationale of regulation, the various theories of regulation are described, distinguishing public-interest theories and private-interest theories. The normative regulatory concepts are divided up into the categories of price-based regulation, cost-based regulation (rate-on-return, sliding-scale and returnon-cost regimes), performance-based regulation (price-cap, revenue-cap, yardstick mechanism, Vogelsang-Finsinger and Sibley mechanisms, incremental surplus subsidy scheme), new regulatory economics and benchmarking. The paper reviews attempts in the literature to link electricity market reforms in the United Kingdom and particular market outcomes which reveal that methodological difficulties persist and comparatively little attention has been given to regulatory impact analysis. Notably, the ex-ante design of a potential ex-post impact analysis would be a useful addition to any new regulatory process. [ABSTRACT FROM AUTHOR]