Price regulation and risk. The impact of regulation system shifts on risk components. (Q986611)

The author considers price regulated companies and analyzes the effects of changes of regulation parameters or a shift in the regulatory system. Especially the effects of a rate of return regulation based on cost reporting are compared to RPI-X regulation, ``a system for defining prices in natural monopolies that fixes prices for products without ever considering the costs that underlie the production of goods or service provision'' (p. 30). An empirical analysis is done for the electric and gas network industries in Austria based on the time interval Jan 03 until June 08 analyzing the implications of an ``incentive regulation on electricity'' in June 05. After a short introduction the author reviews capital market-based calculations of the cost of equity in Chapter 2; for regulated companies this is relevant for determining the appropriate cost of capital as well as a prognosis basis for estimating future cash flow. In Chapter 3, the above mentioned regulation principles are introduced. Section 3.2 discusses the regulation principles within the principle agent theory. In Chapter 4, a secondary data analysis is performed using abnormal returns; a regulatory system shift is interpreted as a structural break in the regression line of the market model. The final Chapter 5 includes a primary empirical study done by the author for the Austrian electric power supply industry: a structural break analysis (5.2) and an event study (5.3). The author concludes from his data analysis: The change of June 05 led to structural breaks (5.2) and selecting the event window is most important (5.3).