Regulatory reform in Mexico's natural gas industry : liberalization in the context of a dominant upstream incumbent

The natural gas industry combines activities with natural monopoly characterisitics with those that are potentially competitive. Pipeline transport and distribution, which have natural monopoly characterisitcs, require regulation of price and non-price behavior. Production is a contestable activity, but in a few countries (including Mexico) it remains a state monopoly. Gas marketing is also contestable, but the presence of a dominant, upstream, vertically integrated incumbent may pose significant barriers to entry. Market architecture decisions--such as horizontal structure, regional development, and the degree of vertical integration--are also crucial. The authors report that Mexico has undertaken structural reform in the energy sector more slowly than many other countries,but it has introduced changes to attract private investment in natural gas transport and distribution. These changes were a response to the rapid growth in demand for natural gas (about 10 percent a year) in Mexico, which was in turn a response to economic development and the enforcement of environmental regulations. The new regulatory framework provides incentives for firms to invest and operate efficiently and to bear much much of the risk associated with new projects. It also protects captive consumers and improves general economic welfare. The continued vertical integration of the state-owned company Pemex and its statutory monopoly in domestic production posed a challenge to regulators. Their response in liberalizing trade, setting first-hand sales prices, and regulating natural gas distribution makes the Mexican case an interesting example of regulatory design. As the first phase of investment mobilization and competition for the market in Mexican distribution project concludes, remaining challenges include consistently and transparently enforcing regulations, coordinating tasks among government agencies, and ensuring expansion of gas transport services and domestic production. A key challenge in the near term will be fostering competition in the market. In strengthening the role of market forces, one issue is Pemex's discretionary discounts on domestic gas and access to transport services, made possible by its monopoly in domestic production and marketing activities and its overwhelming dominance in transport. The main instrument available to the regulator is proscribing Pemex contract pricing, but more durable and tractable instruments should be considered.Water and Industry,Oil Refining&Gas Industry,Energy and Environment,Oil&Gas,Carbon Policy and Trading

Integrating independent power producers into emerging wholesale power markets

Many developing and industrial countries have sought to open their electricity industries to competition. In both contexts, policymakers and investors have to deal with the consequences of earlier, more partial sector liberalization measures. Foremost among these is the existence of long-term contracts with independent power producers (IPPs). The long-term nature of these contracts has complicated the introduction of more far-reaching sectoral reform designed to harness competitive market forces for the benefit of consumers. In developing countries, introducing competition is often coupled with breaking up and privatizing state-owned electricity monopolies. In this context, discussion of renegotiation of power purchase agreements has tended toward the polemical. At one end are those who resist any change, arguing that the"sanctity of contracts"precludes modification of contract terms. At the other end are those who favor governments taking coercive measures to modify existing contracts in the name of maximizing economic welfare and minimizing the burden of sector reform on consumers and on the state. Drawing on recent country experiences, the authors analyze alternative approaches to restructuring contracts and designing power markets to reduce rigidities and incentivize IPPs to participate more fully in wholesale power markets and to take on greater market risk. The authors conclude that forced market integration or forced contract negotiation have failed and are counterproductive. Conversely, in countries where IPPs provide a sizable proportion of generation capacity, ignoring market integration may result in insufficient market liquidity and discourage new entry, attenuating the scope for market forces to act for the benefit of consumers. Failure to adapt power purchase contracts and market rules imposes huge resource costs on the economy beyond the financial obligations consumers and taxpayers must bear. Based on recent experience, a combination of measures, including adaptation of specific market rules, contractual alternatives for enhancing market liquidity, contract buyout provisions, transitional financing mechanisms, and characteristics of the successor entity to the power purchaser, offer promising approaches for reconciling preexisting IPP contracts with new market structures and reducing the magnitude of above-market costs associated with such contracts.Markets and Market Access,Payment Systems&Infrastructure,General Technology,Labor Policies,Banks&Banking Reform,Markets and Market Access,Access to Markets,Banks&Banking Reform,Economic Theory&Research,General Technology

Designing natural gas distribution concessions in a megacity: tradeoffs beetween scale economies and information disclosure in Mexico City

In 1995 the Mexican government initiated structural reform of the natural gas sector-reform that permitted private investment in transportation, storage, distribution, trade and marketing while maintaining a State monopoly in production. It prepared a detailed regulatory framework to implement the sector liberalization, including an element to develop distribution systems through concessions in specific geographic areas. The concessions are bid and the winner is permitted physical exclusivity for 12 years in gas distribution but not in gas marketing. In each concession award process a distribution geographical area is defined and minimum consumer coverage targets are established. Bidders present technical and financial proposals, including a market demand study. The winning proposal must be technically sound and offer the lowest average revenue for the first five-year period. Densely populated geographic areas pose a problem for exclusivity in distribution. If the concession is granted to a single firm, scale economies might be very attractive, but regulating a mega-monopoly would be difficult. If the distribution area is subdivided, economies of scale decrease while information for comparative regulation increases. These and such elements as technical characteristicsof the geographic area and potential for competition in related services were considered when designing natural gas distribution franchises for the Mexico City Metropolitan Area.Business Environment,Economic Theory&Research,Markets and Market Access,Consumption,Environmental Economics&Policies,Consumption,Environmental Economics&Policies,Economic Theory&Research,Access to Markets,Markets and Market Access

Information and modeling issues in designing water and sanitation subsidy schemes

In designing a rational scheme for subsidizing water services, it is important to support the choice of design parameters with empirical analysis that stimulates the impact of subsidy options on the target population. Otherwise, there is little guarantee that the subsidy program will meet its objectives. But such analysis is informationally demanding. Ideally, researchers should have access to a single, consistent data set containing household-level information on consumption, willingness to pay, and a range of socioeconomic characteristics. Such a comprehensive data set will rarely exist. The authors suggest overcoming this data deficiency by collating, and imaginatevily manipulating different sources of data to generate estimates of the missing variables. The most valuable sources of information, they explain, are likely to be the following: 1) Customer databases of the water company, which provide robust information on the measured consumption of formal customers, but little information on unmeasured consumption, informal customers, willingness to pay, or socioeconomic variables. 2) General socioeconomic household surveys, which are an excellent source of socioeconomic information, but tend to record water expenditure rather than physical consumption. 3) Willingness-to-pay surveys, which are generally tailored to a specific project, are very flexible, and may be the only source of willingness-to-pay data. However, they are expensive to undertake, and the information collected is based on hypothetical rather than real behavior. Where such surveys are unavailable, international benchmark values on willingness to pay may be used. Combining data sets requires some effort and creativity, and creates difficulties of its own. But once a suitable data set has been constructed, a simulation model can be created using simple spreadsheet software. The model used to design Panama's water subsidy proposal addressed these questions: a) What are the targeting properties of different eligibility criteria for the subsidy? b) How large should the subsidy be? c) How much will the subsidy scheme cost, including administrative costs? Armed with the above information, policymakers should be in a position to design a subsidy program that reaches the intended beneficiaries, provides them with the level of financial support that is strictly necessary, meets the overall budget restrictions, and does not waste an excessive amount of funding on administrative costs.Water Conservation,Environmental Economics&Policies,Health Economics&Finance,Economic Theory&Research,Decentralization,Water Supply and Sanitation Governance and Institutions,Economic Theory&Research,Environmental Economics&Policies,Town Water Supply and Sanitation,Health Economics&Finance

Designing direct subsidies for water and sanitation services - Panama : a case study

As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criteria for direct subsidy schemes is difficult, and identifying eligible households may entail substantial administrative costs. The authors, using a case study from Panama, discuss some of the issues associated with the design of direct subsidy systems for water services. The conclude that: 1) There is a need to assess - rather than assume - the need for a subsidy. A key test of affordability, and thus of the need for a subsidy, is to compare the cost of the service, with some measure of household willingness to pay. 2) The initial assessment must consider the affordability of connection costs as well as the affordability of the service itself. Connection costs may be prohibitive for poor households with no credit, suggesting a need to focus subsidies on providing access, rather than ongoing water consumption. 3) A key issue in designing a direct subsidy scheme is its targeting properties. Poverty is a complex phenomenon, and difficult to measure. Eligibility must therefore be based on easily measurable proxy variables, and good proxies are hard to find. In choosing eligibility criteria for a subsidy, it is essential to verify what proportion of the target group fails to meet the criteria (errors of exclusion) and what proportion of non-target groups is inadvertently eligible for the benefits (errors of inclusion). 4) administrative costs are roughly the same no matter what the level of individual subsidies, so a scheme that pays beneficiaries very little, will tend not to be cost-effective. It is important to determine what proportion of total program costs will be absorbed by administrative expenses. 5) Subsidies should not cover the full cost of the service, and should be contingent on beneficiaries paying their share of the bill. Subsidiesfor consumption above a minimum subsistence level, should be avoided. Subsidies should be provided long enough before eligibility is reassessed to avoid"poverty trap"problems. 6) The utility or concessionaire can be helpful in identifying eligible candidates, because of its superior information on the payment histories of customers. It will also have an incentive to do so, since it has an interest in improving poor payment records. Thought should therefore be given at the design stage to the role of the service provider in the implementation of the subsidy scheme. 7) The administrative agency's responsibilities, the sources of funding, and the general principles guiding the subsidy system should have a clear legal basis, backed by regulations governing administrative procedures. 8) To reduce administrative costs, and avoid duplication of effort, it would be desirable for a single set of institutional arrangements to be used to determine eligibility for all welfare, and subsidy programs in a given jurisdiction, whether sub-national, or national.Sanitation and Sewerage,Environmental Economics&Policies,Health Economics&Finance,Public Health Promotion,Economic Theory&Research,Town Water Supply and Sanitation,Environmental Economics&Policies,Health Economics&Finance,Poverty Assessment,Water Supply and Sanitation Governance and Institutions

Microcanonical and resource-theoretic derivations of the thermal state of a quantum system with noncommuting charges

The grand canonical ensemble lies at the core of quantum and classical statistical mechanics. A small system thermalizes to this ensemble while exchanging heat and particles with a bath. A quantum system may exchange quantities represented by operators that fail to commute. Whether such a system thermalizes and what form the thermal state has are questions about truly quantum thermodynamics. Here we investigate this thermal state from three perspectives. First, we introduce an approximate microcanonical ensemble. If this ensemble characterizes the system-and-bath composite, tracing out the bath yields the system's thermal state. This state is expected to be the equilibrium point, we argue, of typical dynamics. Finally, we define a resource-theory model for thermodynamic exchanges of noncommuting observables. Complete passivity---the inability to extract work from equilibrium states---implies the thermal state's form, too. Our work opens new avenues into equilibrium in the presence of quantum noncommutation.Comment: Published version. 7 pages (2 figures) + appendices. The leading author's surname is "Yunger Halpern.

Pricing, subsidies, and the poor : demand for improved water services in Central America

Reformulating tariff and subsidy policies is central to improving water and sanitation services in developing countries. The traditional model of state enterprise service provision, coupled with residential tariffs set well below the cost of service, has generally delivered unsatisfactory results. Low internal generation of funds has impeded expansion of networks into poor communities and has resulted in very poor services there. Most of the subsidy has benefited higher-income groups. Reformers have proposed private provision to improve efficiency, cost-reflective tariffs to permit the systems to meet demand, and better-targeted subsidies. But is there empirical evidence that existing subsidies are ineffective and that the poor could pay the full cost of water services? Analyzing household survey and water company data from cities of Central America and Venezuela, the authors confirm that: 1) Households without piped connections pay a lot for small amounts of water from"coping sources."2) Most public water companies undercharge hugely, providing an implicit, generalized subsidy and accelerating their systems'decapitalization. 3) There is little income-related differentiation in consumption and therefore in effective piped water tariffs. Volume-based tariffs would generate cross-subsidies from the rich to the poor if the rich consumed more water. But the data indicate that consumption of piped water varies little with income, so most of the water subsidy is captured by the nonpoor. 4) Poor households that are not presently connected would clearly benefit from access to piped water supply. This would require increasing tariffs to cost-reflective levels. But where the urban poor already enjoy access, such tariffincreases would have a disproportionate impact on this income group. This impact should be mitigated through better-targeted, temporary subsidies. 5) The poor are often willing to pay much more than the present tariff for access to piped water but not necessarily the full cost of the monthly consumption assumed by planners (30 cubic meters). If tariffs were set to cover long-run financial costs, many poor households would consume much less. Improving the design of tariff structures and extending metering to such households would permit them to regulate their expenditures on water by controlling their consumption.Town Water Supply and Sanitation,Water and Industry,Environmental Economics&Policies,Water Supply and Sanitation Governance and Institutions,Water Use

The distributional incidence of residential water and electricity subsidies

Subsidies to residential utility customers are popular among policymakers, utility managers, and utility customers alike, but they are nonetheless the subject of much controversy. Utility subsidies are seen as a way to help make utility service affordable for poor households and as an alternative mechanism for income redistribution. These arguments in favor of subsidies are countered by serious concerns about their adverse effects on consumer behavior, utility operations, and the financial health of utilities. Both the affordability and redistributive arguments for subsidies are based on the presumption that poor households benefit disproportionately from water and electricity subsidies, that they are well-targeted to the poor. The authors test this assumption by examining the extent to which the poor benefit from consumption and connection subsidies for water and electricity services. Their analysis of a wide range of subsidy models from around the developing world shows that the most common form of utility subsidy-quantity-based subsidies delivered through the tariff structure-are highly regressive. Geographically targeted or means-tested subsidies do better, and in many cases have a progressive incidence, but large numbers of poor households remain excluded. Low levels of coverage and metering severely limit the effectiveness of consumption subsidy schemes to reach the poor. Simulations suggest that connection subsidies are an attractive alternative for low coverage areas, but only if utilities have the means and motivation to extend network access to poor households and only if those households choose to connect.Economic Theory&Research,Town Water Supply and Sanitation,Tax Law,Urban Water Supply and Sanitation,Energy Production and Transportation

Boston Hospitality Review: Winter 2016

The Evolution of Dual-Branded Hotels: How the Marriott/Starwood Acquisition Enhances Opportunities for Developers By Daniel Lesser, Jonathan Jaeger, & Jeremy Gilston of LW Hospitality Advisors® -- The Making of Airbnb by Morgan Brown -- Hotel E-Commerce: Navigating the Complex Hospitality Digital Marketing Landscape by Leora Halpern Lanz -- Being Lord Grantham: Aristocratic Brand Heritage and the Cunard Transatlantic Crossing by Bradford Hudson -- Hospitality Management: Learning, Doing, Knowing by Christopher Muller -- Disruption from the Inside-Out: Innovation in the Restaurant Industry By Makaela Reink

Boston Hospitality Review: Fall 2015

U.S. Lodging Industry Update – Q2 2015 by Daniel Lesser and Jonathan Jaeger of LW Hospitality Advisors® -- Hotel Crowdfunding Grows Up by Joshua Bowman -- Digital Marketing Budgets for Independent Hotels: Continuously Shifting to Remain Competitive in the Online World by Leora Halpern Lanz and Megan Carmichael -- From Patrons to Chefs, a History of Women in Restaurants by Jan Whitaker -- The Bleacher Bar at Fenway Park: Transforming a Former Indoor Batting Cage Into a Unique Eatery and Bar by Graham Ruggie -- Outrageous by Michael Oshin