IDEAS home Printed from https://ideas.repec.org/a/rom/rampas/v2012y2012i18p73-88.html
   My bibliography  Save this article

Return Requirements For Regulated Entities In The Gas Industry

Author

Listed:
  • Martin EHMER

    (Business Analyst, TU Dortmund University, Germany)

  • Lukas D. SCHUCHARDT

    (Research Assistant TU Dortmund University, Chair of Accounting and Management Control, Dortmund; Germany)

  • Heinz-Werner UFER

    (Assistant Lecturer, TU Dortmund University, Germany)

Abstract

In regulated businesses, utility companies are facing asymmetric risks due to ex-ante regulation. Shareholders have to question whether their business is earning appropriate returns taking into account those asymmetric risks involved. Adequate performance measures need to be designed and installed in order to benchmark the regulated business against alternative investments. In our study we analyse the impact of regulation on the process of steering and more precisely on the definition of return requirements in the case of a Central and Eastern Europe gas industry with permanent ex-ante regulation. For this purpose, we examine the absolute return target by its two inputs, the rate of return and the investment basis. We conduct an Analytic Hierarchy Process in order to assess the options for the investment basis used to calculate an absolute return requirement in a structured way. Our findings show a twofold view on return requirements in terms of the time horizon. In short-term, regulatory parameters should be taken into account. However, in long-term those parameters can only serve as a figure to control whether regulatory conditions fulfil the needs of the shareholders. Our study shall contribute to the static analysis of regulation on return requirements and steering in the gas industry after privatization.

Suggested Citation

  • Martin EHMER & Lukas D. SCHUCHARDT & Heinz-Werner UFER, 2012. "Return Requirements For Regulated Entities In The Gas Industry," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2012(18), pages 73-88, June.
    • Handle: RePEc:rom:rampas:v:2012:y:2012:i:18:p:73-88
    as

    Download full text from publisher

    File URL: https://www.ramp.ase.ro/en/_data/files/articole/2012/18-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Burkhard Pedell, 2006. "Regulatory Risk and the Cost of Capital," Springer Books, Springer, number 978-3-540-30802-7, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Küpper, Hans-Ulrich & Pedell, Burkhard, 2016. "Which asset valuation and depreciation method should be used for regulated utilities? An analytical and simulation-based comparison," Utilities Policy, Elsevier, vol. 40(C), pages 88-103.
    2. Growitsch, Christian & Just, Lisa & Pedell, Burkhard, 2014. "Risk Assessment of Investments in Energy-only and Capacity Markets," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 68(3), pages 181-188.
    3. Roland Strausz, 2009. "Regulatory Risk under Optimal Incentive Regulation," SFB 649 Discussion Papers SFB649DP2009-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Justyna Franc-Dąbrowska & Magdalena Mądra-Sawicka & Anna Milewska, 2021. "Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective," Energies, MDPI, vol. 14(6), pages 1-20, March.
    5. Müller, Christine, 2011. "New regulatory approaches towards investments: A revision of international experiences ; IRIN working paper for working package: Advancing incentive regulation with respect to smart grids," WIK Discussion Papers 353, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    6. Fiocco, Raffaele & Guo, Dongyu, 2020. "Regulatory risk, vertical integration, and upstream investment," European Economic Review, Elsevier, vol. 128(C).
    7. Gunther Friedl, 2011. "Kostenbasierte Preisregulierung, Realoptionen und Investitionsanreize," Schmalenbach Journal of Business Research, Springer, vol. 63(63), pages 136-156, January.
    8. Burkhard Pedell, 2007. "Kapitalmarktbasierte Ermittlung des Kapitalkostensatzes für Zwecke der Entgeltregulierung," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 18(1), pages 35-60, April.
    9. Schäffner, Daniel, 2007. "Bestimmung des Ausgangsniveaus der Kosten und des kalkulatorischen Eigenkapitalzinssatzes für eine Anreizregulierung des Energiesektors," WIK Discussion Papers 293, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    10. Joseph Emmanuel Lukban Angeles, 2017. "Assessing impact of regulatory risk on shareholders’ wealth," Applied Economics, Taylor & Francis Journals, vol. 49(2), pages 202-212, January.
    11. Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, vol. 15(3), pages 191-205, September.

    More about this item

    Keywords

    AHP; Central and Eastern Europe; Incentive Based Regulation; Unbundling; Steering.;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rom:rampas:v:2012:y:2012:i:18:p:73-88. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Androniceanu Armenia (email available below). General contact details of provider: https://edirc.repec.org/data/ccasero.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.