Responsibility for approving proposed transmission investment programmes in New Zealand has recently been placed in the hands of a newly-formed government regulator. In this paper we develop an analytical framework for conceptualising the investment test proposed by this regulator. Our framework...

Incentive regulation allows decentralised decision-making under regulatory settings that are based upon industry characteristics. This study considers the design of regulatory profit caps and the choice of historical or replacement cost for incentive regulation when there is uncertainty sunk...

We present a competitive storage model of commodity prices featuring frictions that introduce an element of irreversibility into storage decisions. This leads to situations in which speculators do not trade in the spot market even though total storage is positive. As a result the market value of...

In this paper we introduce a model of an electricity market and use it to explore the effect of climate change on electricity prices and output. It has multiple generation fuels uncertain fuel availability and storage options. The model is formulated in continuous time which mimics the many...

Professor Lewis Evans presented Sunk Investments, Regulation and the Cost of Capital at an ISCR Auckland seminar: Calculating the Cost of Capital: A Revisionists' Appraisal.

The irreversibility of much infrastructure investment means that some assets will stop earning revenue before the end of their physical lives; they will be stranded. Under traditional rate of return regulation firms are guaranteed the ability to recover the costs of investment insulating them...