The Consequences for Consumer Welfare of the 2001-2003 Electricity Distribution Price Review in The Netherlands

Abstract

The Dutch regulatory process for setting the first X-Factors in the electricity distribution sector has gone badly wrong. During two-and-a-half years four different X-Factors were published by the regulator. These X-Factors fluctuated wildly. We demonstrate that Dutch electricity consumers will pay at least €300mln. more over three years for the distribution of electricity than might otherwise have been the case. We estimate that benefits for companies in terms of extra revenue from lowered X-Factors amounts to 3~5 percent of total asset value. We provide a history of the regulatory process and analyse the impact of the different X-Factors on the final bills of consumers. The negative political reaction to the perceived problems of regulation has hampered the course of deregulation and the privatisation of the municipally-owned electricity companies. The Minister of Economic Affairs and the majority of Parliament want the complete ownership unbundling of the sector by 1 January 2007.