Distribution price of electricity and potential welfare improvements

The main elements of electricity price can be divided into three components. These are, wholesale price of energy, price of network services and taxes, each composing approximately third of the final price. It seems that wholesale price is determined quite efficiently, while the price of network services have not been under much interest. However, total welfare can be disturbed significantly, if network services are priced in an inefficient way. In this study alternative pricing policies for regulated network companies are considered. We calculate network prices based on three alternative methods, MC-pricing, FDC-pricing and Ramsey pricing. Then the possible welfare effects to the present pricing system are compared. It seems that significant improvement in welfare can be achieved by using MC-prices. Also Ramsey pricing indicates that present prices are not efficient on the social planner point of view.