Competition under revenue-cap regulation with efficiency benchmarking: tariff related incentives for gas transmission system operators in merged markets

Jann T. Keller*, Gerard H. Kuper, Machiel Mulder

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

16 Downloads (Pure)

Abstract

In Europe, gas market mergers aim at reducing restrictions on gas wholesale markets. Market mergers also allow network users to book transport capacity at different gas transmission system operators (TSOs), which may give rise to inter-TSO competition. Our theoretical analysis reveals the incentive for TSOs, operating under a revenue-cap regulation in merged markets, to charge lower tariffs at borders where different TSOs offer capacity, compared to borders where only one TSO offers capacity. This incentive does not directly result from revenue-cap regulation but is due to efficiency benchmarking. We test this hypothesis by applying a panel data analysis to tariffs charged at German border points between 2015 and 2018. In line with our hypothesis, we find lower tariffs at those border points where network users have a choice between different TSOs. An additional sensitivity analysis differentiating between transit and meshed networks confirms this result. We conclude that German TSOs, operating in merged markets and under a revenue-cap regime with efficiency benchmarking, compete for demand at borders at which different TSOs offer capacity.

Original languageEnglish
Pages (from-to)141-165
Number of pages25
JournalJournal of Regulatory Economics
Volume58
Issue number2-3
Early online date29-Aug-2020
DOIs
Publication statusPublished - 2020

Keywords

  • Gas market
  • Tariff regulation
  • Competition
  • Market merger

Cite this