jurisdictions place (and have life of the asset, irrespective for decades) an to of the risk of future ‘obligation connect’ on electricity stranding), effectively dictate distribution networks covering how, when and from whom a broad range of customer many electricity networks types. This places the recover networks network in the position of investments. being required to make The treatment of the customer-specific regulatory asset base investments in connection (in represents a critical part of addition to any required the overall regulatory shared system augmentation compact. This is because to enable that connection) to assets that form the discharge statutory regulatory base, unless they obligations. are protected by either Furthermore, many credible or binding long-term jurisdictions place statutory regulatory rules or restrictions on how and from commitments from a whom networks recover regulatory body, are subject these and other capital to the risk of regulatory ‘asset investments. This means stranding’ or ‘regulatory that network businesses are taking’ (Greenwald 1984). effectively barred from The degree of this risk will allocating the price or affect the cost of financing adjusting terms and the regulated firms new and conditions for access, taking existing investments, since into account the risk of future the regulatory treatment of stranding. Rather, state and past capital investment is the territory arrangements, best objective information combined with the existing available to investors on how regulatory rules framework (providing for returns over the
jurisdictions place (and have for decades) an ‘obligation to connect’ on electricity distribution networks covering a broad range of customer types. This places the network in the position of being required to make customer-specific investments in connection (in addition to any required shared system augmentation to enable that connection) to discharge statutory obligations. Furthermore, many jurisdictions place statutory restrictions on how and from whom networks recover these and other capital investments. This means that network businesses are effectively barred from allocating the price or adjusting terms and conditions for access, taking into account the risk of future stranding. Rather, state and territory arrangements, combined with the existing regulatory rules framework (providing for returns over the life of the asset, irrespective of the risk of future stranding), effectively dictate how, when and from whom many electricity networks recover networks investments. The treatment of the regulatory asset base represents a critical part of the overall regulatory compact. This is because assets that form the regulatory base, unless they are protected by either credible or binding long-term regulatory rules or commitments from a regulatory body, are subject to the risk of regulatory ‘asset stranding’ or ‘regulatory taking’ (Greenwald 1984). The degree of this risk will affect the cost of financing the regulated firms new and existing investments, since the regulatory treatment of past capital investment is the best objective information available to investors on how
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