The Role of the Regulatory Asset Base as an Instrument of Regulatory Commitment

CCRP Working Paper No 22, March 2013

26 Pages Posted: 25 Apr 2018

See all articles by Jon Stern

Jon Stern

City, University of London - Centre for Competition and Regulatory Policy - Department of Economics

Date Written: March 20, 2013

Abstract

This paper discusses the emergence and evolution of the regulatory asset base (RAB) as a key aspect of infrastructure industry regulation in the UK and other countries. In Britain, the RAB emerged during the 1990s after privatization of the main network infrastructure industries. It was initially developed for the England and Wales water industry, but its use spread to UK energy (primarily networks), to railway networks and to the fixed line telecom network. A key feature of the RAB is that it nowhere appears in primary legislation. The paper discusses and presents evidence that the most important feature of the RAB is the process by which the RAB is reassessed and revised and that this provides considerable evidence on the consistency and transparency of regulatory regimes. The quality of this process varies considerably by country and these differences seem to be reflected in ratings agency judgments and share price movements. In the UK, Australia and some other countries, the RAB model has provided a considerable degree of protection against retrospective ‘asset taking’ without imposing the rigidities of the full US ‘rate base’ model.

Keywords: Infrastructure, RAB, Utility Investment, Credit Ratings

JEL Classification: L51, L14

Suggested Citation

Stern, Jon, The Role of the Regulatory Asset Base as an Instrument of Regulatory Commitment (March 20, 2013). CCRP Working Paper No 22, March 2013. Available at SSRN: https://ssrn.com/abstract=3157867 or http://dx.doi.org/10.2139/ssrn.3157867

Jon Stern (Contact Author)

City, University of London - Centre for Competition and Regulatory Policy - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

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