The study evaluates the present price regulatory regime for electricity distribution system operators (DSO) in Hungary. It first evaluates the impact of the present regulation on the DSOs' production and investment efficiency. Next it provides a review of risks posed by the prospective fast penetration of distributed generation and other smart technologies to the DSOs finances under the present price regulatory regime. A financial model quantifies the likely impacts of these risks on the DSOs' financial position. The study concludes with price regulatory proposals with incentives to encourage DSOs to support the penetration of smart technologies and the transition to a low carbon economy in Hungary.