Why innovative mechanisms benefit regulators and regulated utilities

Innovative regulatory mechanisms can help utilities access additional funding while giving regulators the oversight and flexibility they need.

In brief

• The pace of the energy transition is forcing regulators and regulated utilities to rethink their relationship, with new mechanisms supplementing traditional frameworks.
• Innovative regulatory mechanisms, including volume drivers, reopeners, and delivery obligations, can support regulators and regulated utilities alike.
• Regulators and utilities should establish enduring price control offices, review ex ante requirements, streamline business case processes and enhance reporting.

The pace of the energy transition, propelled by trends in decarbonisation, decentralisation, and digitalisation, is forcing regulators and regulated utilities to rethink their relationship. The conventional regulator role of “market referee” is evolving, marked by closer collaboration with utilities to shape the transformation of infrastructure delivery, energy markets, network operations, and renewables integration.

Evolving regulatory frameworks

Traditional regulatory frameworks, such as the regulated asset base (RAB) model, continue to play an important role in determining allowed revenues and capital expenditures. However, they are no longer sufficient on their own. Emerging technological developments such as rapid advances in AI and digital systems are creating new challenges and opportunities that these legacy frameworks were not designed to meet. Additionally, evolving geopolitical dynamics and shifting policy priorities have introduced uncertainty into the regulatory environment. In this context, more innovative regulatory mechanisms are required to ensure cost‑effective investment, enhance adaptability, maintain resilience amid ongoing change, and stimulate innovation.

Regulators are considering more flexible regulatory frameworks that can adapt to rapid technological and market changes, while also shifting toward performance‑based regulation that incentivises utilities to deliver defined outcomes in addition to recovering their costs. At the same time, they are placing greater emphasis on consumer protection by ensuring that any costs passed through to consumers are justified and reasonable.

In May 2026, the Commission for Regulation of Utilities (CRU) published its Final Determination for Revenue Control 4 (RC4)¹, funding the delivery of critical upgrades to Ireland’s water and wastewater infrastructure out to 2029. The record investment of €13.6bn billion is supported by notable regulatory mechanisms under the Agile Investment and Monitoring Framework (AIMF). This regulatory framework includes mechanisms for in-period adjustments, enabling Uisce Éireann to manage uncertainty and exogenous cost pressures.

The RC4 AIMF is similar to the structured regime introduced by the CRU in the Price Review 6 (PR6) regulatory framework. The Final Determination for PR6² was published in December 2025, outlining how Ireland’s electricity network will transform across 2026-2030. The unprecedented investment of up to €18.9 billion is, again, complemented with a suite of regulatory mechanisms, supporting the network companies in proactively responding to emerging system needs.

In Northern Ireland, the Utility Regulator (UR) has adopted similar regulatory frameworks.

4 innovative mechanisms to support regulators and regulated utilities

These adaptive frameworks include innovative regulatory mechanisms that enable utilities to unlock additional funding, as needed, while providing regulators with sufficient oversight and flexibility.

Additional and enhanced mechanisms include:

1. Volume drivers and re-opener mechanisms: Ex ante uncertainties around volumes or deliverability, timing and costs can be managed through in-period adjustment mechanisms. This enables utilities to access additional funding, beyond agreed baseline allowances, when there is more certainty.
2. Broader adjustment mechanisms: Ex ante uncertainties in scope can be accounted for in broader adjustment mechanisms. This enables a flexible approach to managing additional network and non-network investments as the need arises.
3. Performance incentives: Desirable outcomes can be motivated through performance incentives with utilities financially incentivised to achieve specific, additional outcomes that will benefit networks users and end customers.
4. Delivery obligations: Critical projects can be prioritised through individual or bundled delivery obligations with ring-fenced funding tied to specific outputs. This ensures accountability for delivery with built-in flexibility to adapt to changes.

Once such mechanisms are introduced as part of a regulatory framework, specific actions can be taken to maximise their use across the price control period.

Actions to maximise the use of innovative regulatory mechanisms

To facilitate mutually beneficial arrangements, regulators and regulated utilities should:

1. Establish enduring price control offices: Transition away from treating price control periods as projects, establishing enduring price control offices. This will ensure continuous oversight of regulatory frameworks, mitigate risks associated with performance mechanisms, and mitigate the loss of knowledge/capability between price control periods.
2. Periodically review ex ante requirements: Review if mechanism criteria, triggers and thresholds – set out initially in the price control period decision or final determination – continue to be fit for purpose across the price control period. This will ensure a shared understanding as to the conditions to be met.
3. Streamline business case processes: Simplify the development, review, and approval of business cases to unlock additional funding. This will help both regulators and regulated utilities to respond more quickly to the evolving needs of the utility network.
4. Enhance reporting and monitoring: Agree on ways of working, including processes and meeting cadences, to facilitate enhanced regulatory reporting and monitoring. This will ensure greater transparency in how performance-based mechanisms, including performance incentives and delivery obligations, are managed.