Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103297
Authors: 
Schober, Dominik
Year of Publication: 
2013
Series/Report no.: 
EWL Working Paper 21/13
Abstract: 
In the context of yardstick regulation with long-lived assets, the influence of investment cycles and thereof resulting heterogeneous capital structures on the ability to recover capital is quite important. Investment decisions are based on whole investment cycles of the infrastructure. It is shown in this article that variable lifetimes of assets may cause substantial problems of capital-recovery under an efficient firm standard yardstick regulation based on historic (straight-line) depreciation. Resulting heterogeneous investment and cost cycles may cause instantaneous yardstick levels below the long-run refinancing level. Recovery is neither possible in later periods because of the efficient firm standard. An illustrating empirical example is used to demonstrate the relevance of the problem. Finally, two alternatives, branch average cost yardstick determination and correction factors based on the share of capital under depreciation, are discussed.
Subjects: 
Electricity markets
yardstick regulation
benchmarking
infrastructure investment
capital-recovery
sustainable refinancing
JEL: 
L51
L52
Document Type: 
Working Paper

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