Financial Regulation of the Electricity Distributors: Necessity and Feasibility

Since the second half of the 1980s, when electric utilities were first privatized, the ability of the private sector to manage the supply of electricity with safety and quality has become a matter of high relevance for national governments wherever privatization has taken place. In this regard, the severe financial problems that have affected some electric utilities in different countries from time to time, have made it increasingly clear that exposure to financial risk can compromise a utility's ability to maintain service quality and continuity, and therefore that regulatory authorities should pay attention to the identification and control of utilities' financial risk exposure. This article aims to explore the factors that could contribute to the financial vulnerability of electricity distribution companies, in order to identify potential instruments for risk recognition and management. This study also proposes to examine possible regulatory policies for monitoring and addressing financial sustainability problems in these companies, a topic which has so far received scant attention in the international literature on electricity regulation. Lastly, this paper will evaluate the feasibility of regulating the financial exposure of electricity distributors.