service’, or electric vehicle ‘stranded’. Otherwise, a further developments, and discussion is needed to increasing flow of ‘two-way’ establish much’ of the energy and information mean ‘how asset is truly stranded, which that the electricity grid will not is a not a simple exercise. be more valuable, rather than less. Aside for a relatively limited set of clearly by-passed, or A second claim is that obsolete assets, these regulatory asset write-downs conditions may be genuinely are an important tool to hard to establish. A or ‘punish’ ‘discipline’ regulator’s hope of doing so excessive investment. This is not assisted by the claim is typically predicated inevitable uncertainty and on an assessment that subjectivity that may attach to regulatory gaming may lead forecasting future demand to the embedding within the and competitive conditions, regulatory asset base of technological developments, excessive past investments. and potential alternative uses Both claims are complicated, of assets. typically, by the presence of An example of past or existing obligations to challenges is the widely invest. Where a regulated unforeseen use of the firm has invested to meet decades-old copper network binding licence or minimum to deliver very high-speed service obligations, on a broadband through a basis, it is combination of technological difficult to see ex post developments. Similarly, it is regulatory action as a not obvious in respect of particularly well-targeted electricity networks that regulatory tool enshrining distributed energy sound future incentives. In developments, potential for the case of the electricity
service’, or ‘stranded’. Otherwise, a further discussion is needed to establish ‘how much’ of the asset is truly stranded, which is a not a simple exercise. Aside for a relatively limited set of clearly by-passed, or obsolete assets, these conditions may be genuinely hard to establish. A regulator’s hope of doing so is not assisted by the inevitable uncertainty and subjectivity that may attach to forecasting future demand and competitive conditions, technological developments, and potential alternative uses of assets. An example of challenges is the widely unforeseen use of the decades-old copper network to deliver very high-speed broadband through a combination of technological developments. Similarly, it is not obvious in respect of electricity networks that distributed energy developments, potential for electric vehicle developments, and increasing ‘two-way’ flow of energy and information mean that the electricity grid will not be more valuable, rather than less. A second claim is that regulatory asset write-downs are an important tool to ‘punish’ or ‘discipline’ excessive investment. This claim is typically predicated on an assessment that regulatory gaming may lead to the embedding within the regulatory asset base of excessive past investments. Both claims are complicated, typically, by the presence of past or existing obligations to invest. Where a regulated firm has invested to meet binding licence or minimum service obligations, on a basis, it is difficult to see ex post regulatory action as a particularly well-targeted regulatory tool enshrining sound future incentives. In the case of the electricity
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