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Where the Champsaur Commission Has Got It Wrong

September 2009

The Electricity Journal

One fairly unique feature of France is that it hosts a large fleet of nuclear reactors. It is owned by the incumbent, EdF, and provides this 85-percent state-owned enterprise with an economic advantage to compete on price. Moreover, because the energy mix in continental Europe is unbalanced, French nuclear power generation benefits from an extra scarcity rent which is likely to last for a long time. Since the opening of the retail market to competition in July 2007, the allocation of this rent and the survival of EdF competitors have been major issues discussed by French lawmakers.

They are both addressed in a white paper, issued in April 2009, that has been called the Champsaur commission report.

The Champsaur commission contains three main recommendations: (1) withdrawing the current retailadministered tariff for business; (2) maintaining retail administered tariffs for households, and (3) introducing a wholesale-administered tariff on electricity from nuclear power generation.

We welcome the fact that the commission proposes to abandon the so-called TaRTAM. As has been rightly pointed out in the commission’s report, this tariff for business is very complex to implement (and hence costly) and freezes competition.

However, we have reservations about the other two recommendations. Our arguments, explained below, are mainly based on the classical two-prong economic test to support a new regulation: (1) assessing its costs and benefits to ensure the latter offsets the former, and (2) comparing the recommended regulation with alternative instruments to verify that it is the best choice.  

 

Authors

Claude Crampes is Professor at the Toulouse School of Economics and member of the Institut d’Economie Industrielle. He has been advisor in energy economics for Iberdrola, the French Energy Regulatory Commission (CRE), RTE and EdF. 

Jean-Michel Glachant is Director of the Florence School of Regulation at the European University Institute in Florence. He also holds the Loyola de Palacio Chair in European Energy Policy. He has been an advisor in energy policy of DG TREN, DG COMP and DG RESEARCH at the European Commission and advisor to the French Energy Regulatory Commission (CRE).

Christian von Hirschhausen is the scientific head of the Chair of Energy Economics and Public Sector Management at the Dresden University of Technology. He is also professor for infrastructure policy at the Berlin University of Technology, and Research Director at DIW Berlin (German Institute for Economic Research).

François Lévêque is Professor of Economics at Mines-ParisTech. He has frequently advised the French Energy Regulatory Commission, OECD, the Directorate General on Transportation and Energy, and the Directorate General on Competition of the European Commission.

David Newbery is Professor of Applied Economics at Cambridge University, as well as Research Director of the Electricity Policy Research Group there. He was an associate editor of The Economic Journal from 1977 to 2000 and President of the European Economic Association for 1996. He was a Member of the Monopolies and Mergers Commission from 1996 to 2002, and Chairman of the Dutch electricity market surveillance committee from 2001 to 2005. He is a member of the DEFRA’s Environmental Economics academic panel and has been an advisor to most of the UK regulatory agencies (Offer, Ofgem, ORR, Ofwat).

Ignacio Perez-Arriaga is full Professor of Electrical Engineering and has been founder and Director for 11 years of the Institute for Research in Technology at Comillas University, where he has also been Vice Rector for Research and is presently Director of the BP Chair on Sustainable Development. He served for 5 years as Commissioner at the Spanish Electricity Regulatory Commission.

Pippo Ranci has been the first president of the Italian Regulatory Authority for electricity and gas (1996–2003) and co-founder and vice-president of CEER (the European association of energy regulators). He has set up and directed the Florence School of Regulation at the European University Institute (EUI) in Florence.

Steven Stoft has served as a staff scientist at the Lawrence Berkeley National Laboratory and research associate at the University of California Energy Institute. As a consultant, he advised the Market Monitoring Unit at PJM 1999 until 2008 and helped design the generating-capacity market at the New England electricity market (ISO-NE).

Bert Wilems is Assistant Professor at CentER and TILEC at Tilburg University. 

 

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