When Does Electricity Price Cap Regulation Become Distortionary?

Australia has a deregulated national wholesale electricity market, a national network regulatory framework, but inconsistent state‐based regulated retail price caps in workably competitive markets. This article finds that asymmetric information and the complexity of energy markets means that a regulator, no matter how wise and well resourced, could never be expected to produce reliable estimates of competitive prices. If regulation represents a policy constraint, relying on long‐run concepts rather than short‐run prices is least damaging to the flow of capital and non‐linear pricing .