Incentive Regulation and Distribution Network Performance: A Dutch Case Study (2000–2024)

Abstract This paper assesses the long-term effects of incentive regulation on the financial and operational performance of Dutch electricity distribution system operators (DSOs) from 2000 to 2024. Using a proxy for regulated income—Constructed Regulated Revenue—we evaluate the outcome of yardstick-based benchmarking across seven regulatory periods. Constructed Regulated Revenue per connection rose from €284 in 2000 to €381 in 2024, a real-term increase of 1.2 percent per year. This growth, however, masks substantial heterogeneity: from 2000 to 2017, productivity improved by 1.9 percent per year, but between 2018 to 2024 this dropped to -3.6 percent per year. The backward-looking design of the regulatory framework limited incentives for anticipatory investments. Expenditures rose sharply as DSOs responded to grid congestion and the demands of the energy transition, eroding earlier cost reductions. We conclude that while incentive regulation in the Netherlands was effective in reducing costs during the early periods, it did not adequately support long-term investment under evolving system conditions. The results underline the importance of forward-looking regulatory mechanisms that align cost efficiency and pass-through cost with future grid needs. JEL Codes: L94, D24, Q48, L51