Eandis: Financing the Roll Out of Smart Meters in a Regulated Environment
(4 pages of text)
In 2014, Eandis System Operator CVBA (Eandis), a low- and medium-voltage power distribution system operator (DSO) in Belgium, had an ambitious plan for investing in a smart metering infrastructure, but the regulatory context was uncertain. The company had been operating in a regulated monopoly characterized by a cost-plus pricing regime. The regime allowed the company to recover its costs through the tariffs it charged grid users for access to the electricity distribution network. In recent years, the regime had motivated the company to invest in infrastructure; however, the cost-plus regime was about to be replaced by a new type of regulation based on incentives and the DSO’s performance. Under the new regulation, DSOs could propose investments to the regulator, who then approved the investments based on a cost-benefit analysis. In this context, Eandis must decide whether to continue with its plan to invest in smart metering and, if so, how to structure the investment to appeal to the equity investors.
The case acquaints students with the importance and use of financial planning models to analyze the impact of investment programs on the overall performance of a power grid company. The case was prepared for participants who are usually senior managers with significant sector experience; however, the case can be used in other settings if the instructor provides a refresher on the basics of financial statements and the different regulatory regimes that apply to power grid companies. By working through this case, students will have the opportunity to do the following:
- Study the interaction between a regulatory environment and a company’s financial planning department.
- Use financial models to analyze the impact of investment programs on the overall performance of the company.
- Assess how financial performance and investment decisions can be affected by the regulatory framework that governs the DSO business.
- Highlight the importance of regulatory risk when using financial analysis models.
Belgium, Large, 2014
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