regulation of the transmission business
DESCRIPTION
Regulation of the Transmission Business. A presentation to HAPUA Working Group 5. Dinna O. Dizon Head, Regulatory Compliance Monitoring Department National Transmission Corporation February 25, 2009. - PowerPoint PPT PresentationTRANSCRIPT
Regulation of the Transmission Regulation of the Transmission BusinessBusiness
A presentation to HAPUA Working Group 5
Dinna O. DizonHead, Regulatory Compliance Monitoring Department
National Transmission CorporationFebruary 25, 2009
TransCo
2
The Philippine transmission business is regulated under Performance Based
Regulation (PBR) using a revenue cap approach
Adopted in May 2003 by the ERC thru its promulgation of the Transmission Wheeling Rate Guidelines (TWRG)
TransCo
Rationale for PBR
EPIRA Sec. 43(f) In the public interest, [ERC shall] establish and enforce a methodology for setting transmission and distribution wheeling rates xxx, taking into account all relevant considerations, including the efficiency and inefficiency of the regulated entities
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PBR is a form of utility regulation
that strengthens the financial
incentives to lower rates, lower cost,
or improve non-price performance
relative to traditional regulation.
What is Performance Based Ratemaking (PBR)?
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Why Adopt PBR Now?
Costs are more predictable. Ability to stabilize revenues and earnings
over multi-year period. Rate case avoidance for multi-year PBR
plans. Opportunities to be rewarded for cost
cutting and efficiencies. Incentives for market/technology risk
taking.
TransCo
PBR vs Cost Based (RORB) PBR
Ex-ante cost (forecast data and ‘time-value-of-money’). Uses pricing formula independent of cost. Provides incentive for utility to lower costs and rates. Creates opportunity for a utility to earn additional profits by reducing
costs or improving service. Reduces regulatory delays and cost. Sets measurable targets for reliability & safety and provides
incentives for meeting the targets/standards. RORB
Ex- post cost (historical data). Uses fixed rate of return in computing revenue requirement. Cost based rates. No guaranteed rate of return (potential to overspend) . Short-term incentives to reduce costs since benefits on cost
reductions are kept by stakeholders until the next rate case where benefits eventually flow to consumers.
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Building Block Approach
Operating Expenditure - Operating and maintenance
expenditure forecasts approved by the ERC
Operating
Expenditure
Taxes
DepreciationAnnual
Revenue Requirement
(ARR)
Return on
Capital
Taxes - Corporate income taxes and other taxes
Depreciation - Regulatory depreciation on re-valued
Regulatory Asset Base
Return on Capital - WACC-based return on Regulatory
Asset Base (including working capital)+
+
+
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tRBR
tKX
tCWI
tMAR
tMAR }]1{
1[
This year’s revenue
Previous year’s revenue
Index of change in Consumer
Prices (Sec. 3.3)
Efficiency factor or Smoothing factor
Correction for revenue over or
under-recovery in previous year.
(Sec. 3.4)
Portion of net income derived
from related business
Formula that regulates TransCo’s revenue on an annual basis
Price Control Formula (Section 3.2)
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Current Activities
Ongoing process for the amendment of the TWRG
Preparation for the Upcoming Regulatory Reset for the Third Regulatory Period (2011-2015)
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END OF PRESENTATION
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