A Day Late and a Dollar Short: Intertemporal Revenue Cap Regulation Considering Stranded Assets

A Day Late and a Dollar Short: Intertemporal Revenue Cap Regulation Considering Stranded Assets | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article A Day Late and a Dollar Short: Intertemporal Revenue Cap Regulation Considering Stranded Assets Maria Nussberger, Hendrik Diers, Philipp Artur Kienscherf This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7427626/v1 This work is licensed under a CC BY 4.0 License Status: Under Revision Version 1 posted 8 You are reading this latest preprint version Abstract The European Union's goal of carbon neutrality by 2050 requires a major reduction in natural gas use for residential heating. However, gas grid equipment, amortized over 45 years in most countries, risks becoming stranded assets. The literature suggests that regulatory shocks could justify enhanced cost recovery during the remaining grid use period to reduce social costs of asset stranding. Under revenue cap regulation, increased cost recovery and higher tariffs may prompt households to switch to alternative technologies. These premature defections risk undermining cost recovery and place additional financial burdens on remaining households. Regulators face a trade-off between efficient defections and cost recovery. This paper introduces an intertemporal equilibrium model to explore network tariffs and household responses under different revenue caps and analyze their welfare implications. We demonstrate that degressive front-loading is an optimal strategy, balancing cost recovery with household exits, reducing stranded assets, and minimizing social costs. Furthermore, we find that, under the predominant revenue cap schemes, total cost recovery is often not achieved. We also examine distributional implications, showing how tariffs burden heterogeneous households. This research offers insights for policymakers and regulators into mitigating stranded costs while managing household defection impacts in countries with revenue cap regulation and young gas grids. JEL classification: D15, D42, D63, L12, L38, L42, L51, L95 Gas regulation revenue caps network tariffs household response Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Revision Version 1 posted Editorial decision: Revision requested 04 Apr, 2026 Reviewers agreed at journal 16 Nov, 2025 Reviews received at journal 09 Nov, 2025 Reviewers agreed at journal 10 Sep, 2025 Reviewers invited by journal 06 Sep, 2025 Editor assigned by journal 22 Aug, 2025 Submission checks completed at journal 22 Aug, 2025 First submitted to journal 21 Aug, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7427626","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":513223158,"identity":"01e6e354-e402-4907-9ac3-0408f1623ab0","order_by":0,"name":"Maria Nussberger","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABGklEQVRIie3PsUrDQBzH8d9RSJdrXC2R+ATChUKWDr5KQyFdigguGRxSCucScHUQfYvOCQfNEnGNIBgR4uJgtwQ6mGvodk1Xh/sGLnDch/8doNP902Jg0vxICASA0XzAdbvfSeiOZHvCuglaIgdxuR4hF3cvn3EF3748EYtN/SSuTBhe8cveYaahkrjZjCUR5iOKZGkNVuKmuZhwHliJYaYe48Y+YorAi8gitMhKePz8m1uUCbB8oiavJZKtJD2yrOvHhqDPra0kH4Wa5D4ExdyLDMJPB6EkxtrCbor6+W5eQpwxf0Qzwsd0PZNk6kRM0GF26GJ+b/MTTO3+ffr1Vt2OvefQcIoqELaZqp/fxhR7tOO8TqfT6Y70BzqbX8nZeyrfAAAAAElFTkSuQmCC","orcid":"","institution":"University of Cologne","correspondingAuthor":true,"prefix":"","firstName":"Maria","middleName":"","lastName":"Nussberger","suffix":""},{"id":513223160,"identity":"5e9ecefc-f1af-4651-8ec2-7d132cf22e1d","order_by":1,"name":"Hendrik Diers","email":"","orcid":"","institution":"Institute of Energy Economics at the University of Cologne","correspondingAuthor":false,"prefix":"","firstName":"Hendrik","middleName":"","lastName":"Diers","suffix":""},{"id":513223162,"identity":"1fd9bc8f-6913-4eec-bfb2-42617b7cc06b","order_by":2,"name":"Philipp Artur Kienscherf","email":"","orcid":"","institution":"Institute of Energy Economics at the University of Cologne","correspondingAuthor":false,"prefix":"","firstName":"Philipp","middleName":"Artur","lastName":"Kienscherf","suffix":""}],"badges":[],"createdAt":"2025-08-21 15:23:30","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-7427626/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7427626/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":91140579,"identity":"eea788e7-f84d-4067-8f2c-8879b375eb96","added_by":"auto","created_at":"2025-09-12 04:30:54","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":547581,"visible":true,"origin":"","legend":"","description":"","filename":"ADaylateADollarshortJRE.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7427626/v1_covered_e6d97c19-9989-425d-952a-8e8e6a8fd710.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"A Day Late and a Dollar Short: Intertemporal Revenue Cap Regulation Considering Stranded Assets","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"journal-of-regulatory-economics","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"rege","sideBox":"Learn more about [Journal of Regulatory Economics](http://link.springer.com/journal/11149)","snPcode":"11149","submissionUrl":"https://submission.nature.com/new-submission/11149/3","title":"Journal of Regulatory Economics","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Gas, regulation, revenue caps, network tariffs, household response","lastPublishedDoi":"10.21203/rs.3.rs-7427626/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7427626/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe European Union's goal of carbon neutrality by 2050 requires a major reduction in natural gas use for residential heating. 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