Transmission Rights and Market Power on Electric Power Networks I: Financial Rights

Paul Joskow and Jean Tirole


In many countries, infrastructure sectors that have historically been vertically integrated natural monopolies subject to public regulation, such as electric power, railroads, and natural gas production and distribution, are being restructured. Most restructuring programs distinguishbetween potentially competitive sectors (e.g. electricity generation, railroad rolling stock, and natural gas production), where prices and entry will be deregulated, and natural monopoly or “network infrastructure” segments (e.g. electric transmission networks, railroad track and terminal networks, and natural gas pipeline and distribution networks) which continue to be subject to some form of public control of prices, entry, and service quality. Importantly, suppliers in the competitive segments require access to the network infrastructure segments in order
to supply their services to consumers in competition with their rivals.