Generating efficiency: The power of price caps in the public and private Spanish electricity sectors

Economic regulation of firms with market power has placed increasing emphasis on incentive-based regulation such as price caps. The move to such regulation often coincides with a change of ownership, making it difficult to separate the incentive effects. We focus on the effect of regulation alone by analysing the imposition of price cap type regulation on both publicly and privately owned Spanish electricity generators in 1988, several years before three was any change of ownership. Our initial results indicate that the publicly owned generators are generally more efficient than the private ones, but that the effect of price caps is to increase the efficiency of private sector plants faster than those in the public sector. We introduce two novelties into the analysis: we incorporate levels of CO2 and NOx emissions; and we include declared plant availability as an output. The outcome is dependent on the choice of inputs and outputs, and we argue that our measures are more appropriate than traditional measures for a system of central despatch for generators facing environmental constraints. (au) 37 refs