The European energy sector is undergoing significant changes, requiring regulatory authorities to adopt innovative approaches based on individualized regulatory methodologies. Network price regulation, which had historically included the entire value chain, was narrowed to the tariffs of distribution and transmission network operators only. Initially, network price regulation was based on Cost Plus and Rate of Return methodologies, which indirectly motivated companies to increase investment in their networks without sufficient attention for their efficiency. This led to the Averch-Johnson effect, which was the main reason behind replacing the initial methodologies by alternative and more advanced regulatory principles, such as RPI-X. RPI-X is based on setting a long-term cap on allowed prices, aimed at improving the efficiency of regulated companies. The utilities sector must become more proactive and adopt a new approach to regulatory management to remain profitable and succeed in this new environment.
