Implementing regulation towards the creation of a well-functioning energy market

Abstract

Creating models that provide incentives for utilities is a challenging regulatory task. The purpose of this study is to conduct the analysis of different regulation methods that regulators implement to ensure the development of the energy market. The study considers the following main regulation methods: social regulation, rate-of-return regulation, retail price index minus X (RPI − X) regulation, sliding scale regulation and yardstick regulation. Special attention is paid to the selection of an appropriate benchmark method for conducting efficiency analysis with the aim of setting the productivity factor X, which is crucial for the viability of any applicable form of the RPI − X incentive regulation. Under the RPI − X regulatory regime for the defined period of 8 years, the results define the curves related to price cap, productivity gain, cumulative inflation and the adjustments relating to unforeseen events beyond the control of utilities. Incentive regulation contributes to the energy supply at the most competitive price.