Analysis Of Incentive Regulation On Pricing Of The Transmission Corporation

Through theory analysis and summering the problems of pricing of Chinese transmission company, price caps regulation is proved to solve efficiently the Asymmetric information between government and the electricity transmission corporation and solve the problem of production efficiency of electricity transmission corporation. Price caps regulation is one method which draws completion factor into price regulation and can gain the social welfare maximum through encouraging monopolistic enterprises to raise their productivity. In this paper, it builds a price regulation model including a variable of enterprises effort level (e), based on the price cap regulation model RPI-X. It analyzes the government prevails electricity transmission enterprises to report their true effort level under the asymmetry information situation to gain the rational profits, not by highly reporting their cost to get fiscal subsidy or to get monopolistic profits by damaging consumers'utility. The empirical study based on china's data supports the result. Furthermore, the price regulation method based on effort levels can also improve the asset allocation situation between electricity transmitting and distributing assets in electricity industry, which can contribute to improving the total efficiency and realizing the healthy development in electricity industry. Finally, according to the theory analysis and positive analysis, the essay gives some suggestions on reforming the pricing mechanism and suggestions on supporting measures.