Article at a glance:

Next-generation regulation for European electric power

• Regulation of the electricity distribution industry has produced clear benefits for European companies and consumers alike over the last decade—but the law of diminishing returns is setting in. Without an urgent rethink of the widely adopted Performance-Based Rate model, the distributors’ profitability will be squeezed and important capital-investment projects neglected.
• Policy makers and regulators can address the problem by basing future rate reductions on historical rather than prospective performance and by setting regulated returns high enough to encourage the renewal of networks and upgrades that meet the new environmental objectives.