tive to invest in new facilities. This is because current regulatory frameworks do not provide a mechanism for transmission owners to share the benefits that accrue to power plant owners and electricity customers from competition, even though transmission lines are what make the competition possible (APERC, 2003, p. 23). If investments in transmission and distribution are to have a reasonable prospect of being profitable, they must be able to earn a return in excess of the weighted market cost of capital. Thus, in setting transmission and distribution rates, energy regulators should allow a regulated rate of return that at least equals the weighted cost of debt and equity in the marketplace (APERC, 2003, p. 23). Setting such rates at the proper level is particularly important in a liberalised environment to the extent that liberalised electricity markets are likely to require increased levels of investment in transmission to accommodate greater volumes of electricity trade. Moreover, investment in efficient transmission and distribution reduces losses and can be an effective way to lower costs to consumers as well as to reduce emissions of power generation-related pollutants. In the water sector, pricing has been notoriously inadequate to ensure the necessary investment in infrastructure. The significant underinvestment that has prevailed for decades in some countries is a growing source of concern not only for the water utilities but also for the health authorities. Replacing or refurbishing transmission and distribution mains is critical to providing safe drinking water. Failures in transmission and distribution lines can interrupt the delivery of water and possibly allow back-siphonage of contaminated water. Distribution mains in poor repair can pose acute health risks by providing an environment in which bacteria will grow. Moreover, use of pesticides and fertilisers is also likely to lead to further deterioration of water quality and thus to rising costs. This is clearly an unsustainable situation that calls