Proposals to reform the regulatory framework for gas and electricity networks in Germany: Benchmarking analysis and introduction of an “efficiency bonus”

Wed Jun 22 11:51:26 EDT 2016
By Marco Schönborn and Leen Dickx

In this month’s article for the Italian newspaper Quotidiano Energia, NERA Senior Consultant Marco Schönborn and Economic Analyst Leen Dickx, discuss the recent proposals put forward by the German government to reform the existing regulatory framework for gas and electricity networks.

Notwithstanding Aeegsi edging the Italian network regulation towards a British RIIO-type framework, the German proposals provide interesting insights into alternative regulatory approaches. The German government is planning to strengthen the efficiency incentives from benchmarking and in that context also proposes to introduce an “efficiency bonus” for DSOs that may be as high as 5% of controllable totex. Such an efficiency bonus could provide some potential upside for network operators as opposed to only downsides from benchmarking. It would also reflect the working of competitive markets in which the most efficient companies can achieve above normal returns. However, it raises the question if the proposed bonus is really suited to remunerate superior performance by network operators, or simply identifies structural differences and unobserved variables that are not sufficiently reflected in the benchmarking analysis.

Note:  the original article is in Italian.