Pray for Rain – New Frontier Economics bulletin
LOSS CAPITALISATION MODEL: A NEW FORM OF REGULATORY RISK?
A fundamental objective of economic regulation is to ensure a regulated firm has a reasonable opportunity to recover its efficiently-incurred costs. Without this opportunity, such a firm will no longer undertake necessary investments to deliver services to its customers. The Australian Competition and Consumer Commission’s (ACCC’s) recent draft decision on how State Water’s volume risk should be managed departs from standard regulatory practice. This bulletin from Frontier (Australia) examines how this draft decision might set a precedent for other regulated businesses with volume risk, such as electricity and gas networks, telecommunications and urban water.
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