The Danish Income-Cap Regulation in the Power Supply Sector

The break-even principle (a cost-based regulation approach) has been a fundamental principle for the price regulation of the Danish utilities for several decades. Following the liberalization of parts of the energy sector, this regulation has been supplemented with new instruments to regulate monopoly areas. This form of regulation was introduced in connection with a new electricity supply regulation from 1999. The detailed design of the income-cap regulation has been left to the Minister responsible for the energy sector and the supervisory authority (currently the Danish Utility Regulator (DUR)). Income-cap regulation of power grids has given rise to several challenges. Thus, the specific design of the revenue framework has been changed several times. At the same time, however, some experience has been gained with the administrative handling of this form of regulation. Several cases have, in the absence of administrative courts in Denmark, been dealt with by the Danish Energy Board of Appeals (EBA). Since the introduction of revenue frameworks, the power (electricity) sector has changed. Furthermore, the sector must now adapt to the green transition, which will require capacity expansion at both transmission and distribution levels, or other measures to be taken to prevent bottlenecks in the system. In this article the income-cap experience will be discussed. Income-cap, grid companies, green transition, electricity, power supply, utilities