Competition under revenue-cap regulation with efficiency benchmarking: tariff related incentives for gas transmission sy
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Competition under revenue‑cap regulation with efficiency benchmarking: tariff related incentives for gas transmission system operators in merged markets Jann T. Keller1,2 · Gerard H. Kuper1 · Machiel Mulder1
© The Author(s) 2020
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. Keywords Gas market · Tariff regulation · Competition · Market merger JEL Classification D47 · K23 · L51 · L95 · L98 · Q48
The views expressed in this paper are those of the authors and do not necessarily reflect those of GTG, and do not constitute any obligation on GTG. * Jann T. Keller [email protected] 1
Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands
2
Gastransport Nord GmbH (GTG), Oldenburg, Germany
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1 Introduction According to economic theory, the absence of effective competition requires regulation of natural monopolies. Such monopolists are often infrastructure operators. In gas markets, transmission and distribution networks are natural monopolies, and hence they are regulated. Transmissions networks, operated by transmissions system operators (hereafter: TSOs), connect all major players and infrastructures of gas markets. Therefore, they are the backbone of gas markets that facilitate wholesale markets.1 In Europe, there are gas market areas organised as so-called entry-exit systems, which also allows for cross-border trade. To reduce barriers to trade, and to increase wholesale market liquidity and competition, several European gas markets have already merged with more mergers to be expected. Market mergers facilitate market integration. Barriers, like tariffs, between markets disappear, so that single markets are joined to become one market, resulting in a single price on the wholesale market for gas (ACER and CEER 2015). Besides the impact on wholesale markets, market mergers can also have an impact on the behaviour of gas TSOs. If, afte
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