Regulatory Contracts and the Scope for Local Decision-Making with Respect to Energy Distribution Networks

Historically, electricity and gas supply evolved at the local level. In the nineteenth century, customers in cities were the first to enjoy artificial lighting by gas lamps and, later, by electric incandescent lamps. At that time, electricity and gas distribution, using public streets for the installation of cable network infrastructures, was granted through franchises or concession contracts. Today, we still find franchises and concession contracts regulating local electricity and gas distribution—but now deeply embedded in a regulatory environment at the national level, including statutes, regulatory agencies, and courts. As a consequence, this framework determines the scope for local regulation. In the light of the above, the question remains to what extent franchises and concession contracts can be seen as a means for genuine local regulation of electricity and gas distribution networks. Starting from the analysis of franchise-bidding schemes with respect to network infrastructures, we know what structures might lead to reduced inefficiencies and what inabilities pose problems. These insights give a guideline for the design of regulatory frameworks as a contractual relationship that are of high practical relevance, especially at a local level. This paper intends to contribute a next step in this analysis. Instead of prioritising centralised economic regulation for efficient allocation, we can emphasise the coordination of actors through decision-making processes. By virtue of decentralised coordination and consent with all the relevant actors at a local level, there is the prospect of more detailed goals different from centralised goals at a national level.