The challenges of imperfectly unbundled TSOs : can corporate governance or regulatory action mitigate such imperfection?
Title: The challenges of imperfectly unbundled TSOs : can corporate governance or regulatory action mitigate such imperfection?
Citation: Competition and regulation in network industries (CRNI), 2014, Vol. 15, No. 2, pp. 117-137
This article provides a framework for analyzing the effects of imperfect ownership unbundling and the effectiveness of related corporate governance mechanisms as well as regulatory actions to mitigate against such effects in the case of operators of an electricity transmission grid, i.e., so-called Transmission System Operators (TSOs). We propose a matrix analysis that considers three main tasks of a TSO (as one dimension) for different unbundling scenarios (as the other dimension). We apply the matrix for analyzing the case of the Swiss TSO Swissgrid as a special form of imperfect unbundling. Based on a task based welfare analysis, we argue that full ownership unbundling is optimal for certain strategic decisions such as the transfer of the grid from old to new owners. In some cases, corporate governance mechanisms, no matter how sophisticated, will not solve conflicts of interest within an imperfectly unbundled electricity firm. Also, in some cases, regulatory action cannot mitigate such imperfection. In contrast, we find no evidence that operations suffer from this lack in corporate governance. Insofar, trade-off s arise between different degrees of unbundling.
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