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Financeability of Investments and Allocation of Costs: an Assessment of the Incentive Regulation of the Dutch High-Voltage Network

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  • M. Mulder

Abstract

Regulation of network tariff s is generally meant to pursue several public interests, in particular that network users should pay not more than the efficient costs while network operators should be able to finance investments. Between these objectives trade-off s exist depending on the actual characteristics of a network. This paper analyses the impact of incentive regulation on both the ability of the Dutch highvoltage network operator (TenneT TSO) to finance investments and the allocation of costs among shareholders and customers. Based on a simulation of the financial development of the network operator over 2010–2030, we conclude that the regulatory framework enables the operator to finance its investments as shareholders can be given an appropriate return on capital, provided that the operator gradually eliminates the existing inefficiencies in the network. In the mean time, customers necessarily pay more than the level of efficient costs. It appears that the allocation of costs of the current network inefficiencies among shareholders and customers depends on the regulatory choice on the time path the network operator gets to repair these inefficiencies. Eventually, regulatory choices depend on the political debate regarding diverging public interests of investments in networks versus a fair distribution of costs.

Suggested Citation

  • M. Mulder, 2012. "Financeability of Investments and Allocation of Costs: an Assessment of the Incentive Regulation of the Dutch High-Voltage Network," Competition and Regulation in Network Industries, Intersentia, vol. 13(2), pages 160-187, June.
  • Handle: RePEc:sen:journl:v:13:y:2012:i:2:p:160-187
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    Cited by:

    1. Jann T. Keller & Gerard H. Kuper & Machiel Mulder, 2020. "Competition under revenue-cap regulation with efficiency benchmarking: tariff related incentives for gas transmission system operators in merged markets," Journal of Regulatory Economics, Springer, vol. 58(2), pages 141-165, December.
    2. Ward Romeijnders & Machiel Mulder, 2022. "Optimal WACC in tariff regulation under uncertainty," Journal of Regulatory Economics, Springer, vol. 61(2), pages 89-107, April.
    3. Gert Brunekreeft, 2012. "On the Role of International Benchmarking of Electricity Transmission System Operators facing significant investment requirements," Bremen Energy Working Papers 0012, Bremen Energy Research.
    4. Nico Keyaerts & Leonardo Meeus, 2015. "The experience of Italy and the US with exceptional regulatory incentives for exceptional electricity transmission investments," RSCAS Working Papers 2015/44, European University Institute.
    5. Dijkstra, Peter T. & Haan, Marco A. & Mulder, Machiel, 2017. "Design of yardstick competition and consumer prices: Experimental evidence," Energy Economics, Elsevier, vol. 66(C), pages 261-271.

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