Refinancing Under Yardstick Regulation with Investment Cycles - The Case of Long-Lived Electricity Network Assets

46 Pages Posted: 23 Sep 2015

See all articles by Dominik Schober

Dominik Schober

ZEW – Leibniz Centre for European Economic Research

Christoph Weber

University of Duisburg-Essen

Multiple version iconThere are 2 versions of this paper

Date Written: August 2015

Abstract

In the context of yardstick regulation with long-lived assets, the influence of heterogeneous investment cycles on the ability to recover capital is found to be important. The application of efficient firm standards-based on historic (straight-line) depreciation-given heterogeneous investment and cost cycles will cause instantaneous yardstick levels below the long-run refinancing level. The efficient firm standard will prevent capital recovery in later periods. An illustrating example from electricity distribution illustrates the relevance of the problem. Finally, two alternatives, branch average cost yardstick determination and correction factors based on the share of capital under depreciation, are discussed.

Keywords: yardstick regulation, infrastructure investment, capital-recovery, sustainable refinancing, electricity distribution

JEL Classification: L51, L52

Suggested Citation

Schober, Dominik and Weber, Christoph, Refinancing Under Yardstick Regulation with Investment Cycles - The Case of Long-Lived Electricity Network Assets (August 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-065. Available at SSRN: https://ssrn.com/abstract=2663465 or http://dx.doi.org/10.2139/ssrn.2663465

Dominik Schober (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Christoph Weber

University of Duisburg-Essen ( email )

Universitätsstraße 2
Essen, 45141
Germany

HOME PAGE: http://www.ewl.wiwi.uni-due.de

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