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8 - Auctions of gas transmission access: the British experience

Published online by Cambridge University Press:  03 December 2009

Tanga Morae McDaniel
Economist at the Department of Applied Economics, Cambridge University
Karsten Neuhoff
PhD student, Cambridge University
Maarten Janssen
Erasmus Universiteit Rotterdam
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An essential component of most utility industries is the network that transfers the commodity (e.g. gas, electrons, data, water) between producers and consumers. Frequently the supply of the commodity cannot meet demand either because of constraints within the network or because of insufficient capacity at points where the commodity is inserted or withdrawn. At these times producers or demand may be rationed. Producers at transport-constrained locations may be replaced by producers at unconstrained locations. Rationing on the demand side can be voluntary, based on price signals or based on interruptible contracts, or it can be involuntary, as occurs during times of rolling blackouts and unanticipated crashes of departmental computer servers. To determine who is rationed first, or, alternatively, who bears the costs of rescheduling production in order to match transmission constraints, we have to identify who owns the rights to the use of the network. Such rights can be implicit, granting unlimited access, explicit, guaranteeing a certain amount of physical delivery, or financial, compensating for costs incurred due to transmission constraints.

The question of transmission rights is of relevance once vertically integrated gas, electricity or water utilities are unbundled such that competing enterprises want to use scarce parts of the network. The successors of previously integrated utilities frequently argue that historic flow patterns guarantee an implicit right to continue similiar use of the transmission network.

Auctioning Public Assets
Analysis and Alternatives
, pp. 197 - 229
Publisher: Cambridge University Press
Print publication year: 2004

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