Regulatory Risk and the Cost of Capital Determinants and Implication
Austrian Controller Award 2005 This book develops a comprehensive concept of regulatory risk integrating existing theoretical and empirical research. The focus is on explaining how the design of the regulatory system influences the risk of a rate-regulate
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Burkhard Pedell
Regulatory Risk and the Cost of Capital Determinants and Implications for Rate Regulation
With 18 Figures and 13 Tables
12
Professor Dr. Burkhard Pedell University of Stuttgart Betriebswirtschaftliches Institut Abteilung V ± Lehrstuhl Controlling Keplerstraûe 17 70174 Stuttgart Germany [email protected]
ISBN-10 3-540-30801-6 Springer Berlin Heidelberg New York ISBN-13 978-3-540-30801-0 Springer Berlin Heidelberg New York Cataloging-in-Publication Data Library of Congress Control Number: 2005938554 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer-Verlag. Violations are liable for prosecution under the German Copyright Law. Springer is a part of Springer Science+Business Media springeronline.com ° Springer Berlin ´ Heidelberg 2006 Printed in Germany The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Hardcover-Design: Erich Kirchner, Heidelberg SPIN 11596783
88/3153-5 4 3 2 1 0 ± Printed on acid-free paper
Foreword
One of the central objectives of the European Union is the liberalization of markets and, in particular, of utility sectors such as the telecommunications, postal services, and energy sectors. National regulatory systems and authorities are installed in order to control the transition process from monopolistic to liberalized markets. In this process, the determination of prices assumes a prominent role. As in the relevant network industries capital costs account for the largest share of total costs, this book addresses a central issue of (de-)regulation. At the same time, a change in the concepts of cost accounting from a traditional, operation-based view, to a more market-based view can be observed in Germany. These trends form the background for the analysis contained in this book. Burkhard Pedell develops a comprehensive concept for the study of regulatory risk and its implications for cost-orientated rate regulation that is founded in state-of-the-art economic research. The concept includes the major variables of regulation that are relevant to the risk (adjusted cost of capital) of rate-regulated firms and investigates the interdependences between them. Central problems such as the circularity between regulation and investors’ expectations, the commitment of the regulator, the employed depreciation methods and their connection to the interest rate, the determination of the regulatory rate ba
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