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    Lesson 4 - Case Study Statement

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    Mila Dautovic
    The document summarizes regulatory calculations for a network monopoly over 5 years. It shows the regulatory asset base, capital expenditures, depreciation, allowed costs and smoothed revenues. A simulation then models the company's actual behavior under a revenue cap regulation, showing differences in actual and allowed asset bases, costs, revenues and rates of return.

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    Lesson 4 - Case Study Statement

    Uploaded by

    Mila Dautovic
    25 views6 pages
    The document summarizes regulatory calculations for a network monopoly over 5 years. It shows the regulatory asset base, capital expenditures, depreciation, allowed costs and smoothed revenues. A simulation then models the company's actual behavior under a revenue cap regulation, showing differences in actual and allowed asset bases, costs, revenues and rates of return.

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    Lesson 4_Case study statement

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    The document summarizes regulatory calculations for a network monopoly over 5 years. It shows the regulatory asset base, capital expenditures, depreciation, allowed costs and smoothed revenues. A simulation then models the company's actual behavior under a revenue cap regulation, showing differences in actual and allowed asset bases, costs, revenues and rates of return.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    25 views6 pages

    Lesson 4 - Case Study Statement

    Uploaded by

    Mila Dautovic
    The document summarizes regulatory calculations for a network monopoly over 5 years. It shows the regulatory asset base, capital expenditures, depreciation, allowed costs and smoothed revenues. A simulation then models the company's actual behavior under a revenue cap regulation, showing differences in actual and allowed asset bases, costs, revenues and rates of return.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 6

    Network monopolies

    REVENUE CAP. EX-ANTE CALCULATION

    REGULATORY ASSET BASE Year 0 Year 1 Year 2


    Opening RAB 280.00 285.50
    Gross capital expenditure - Investment 25.00 16.00
    Regulatory depreciation 19.50 20.03
    Closing RAB 280.00 285.50 281.47

    Average RAB 282.75 283.48

    WACC (real pre-tax) 9% 9%

    REGULATORY DEPRECIATION Life Year 1 Year 2


    Existing assets (15 years) 15 18.67 18.67
    New investment in year 1 (30 years) 30 0.83 0.83
    New investment in year 2 (30 years) 30 0.53
    New investment in year 3 (30 years) 30
    New investment in year 4 (30 years) 30
    New investment in year 5 (30 years) 30

    Total regulatory depreciation 19.50 20.03

    OPERATIONAL COSTS (OPEX) Year 1 Year 2


    OPEX 10.00 9.80

    X factor for OPEX (%) 2.0%

    ALLOWED COSTS Year 1 Year 2


    Return on assets (WACC * RAB) 25.45 25.51
    Depreciation 19.50 20.03
    Operational costs (OPEX) 10.00 9.80

    Total allowed costs (Revenue requirement) 54.95 55.35

    SMOOTHED REVENUES Year 0 Year 1 Year 2


    Smoothed revenues 58.00 57.02 56.05

    PRESENT VALUE ANALYSIS


    PV (Total allowed costs) (WACC is discount factor) 215.00
    PV (Smoothed revenues) (WACC is discount factor) 215.00
    PV difference 0.00
    Calculated X-factor (%) 1.70%
    ATION

    Year 3 Year 4 Year 5


    281.47 275.93 274.73
    15.00 20.00 18.00
    20.53 21.20 21.80
    275.93 274.73 270.93

    278.70 275.33 272.83

    9% 9% 9%

    Year 3 Year 4 Year 5


    18.67 18.67 18.67
    0.83 0.83 0.83
    0.53 0.53 0.53
    0.50 0.50 0.50
    0.67 0.67
    0.60

    20.53 21.20 21.80

    Year 3 Year 4 Year 5


    9.60 9.41 9.22

    2.0% 2.0% 2.0%

    Year 3 Year 4 Year 5


    25.08 24.78 24.56
    20.53 21.20 21.80
    9.60 9.41 9.22

    55.22 55.39 55.58

    Year 3 Year 4 Year 5


    55.10 54.16 53.24
    Network monopolies
    SIMULATION OF COMPANY BEHAVIOUR VS. REVENUE CAP

    ACTUAL ASSET BASE & INVESTMENT Year 0 Year 1 Year 2 Year 3


    Opening RAB 280.00 285.50 281.47
    Gross capital expenditure - Investment 25.00 16.00 15.00
    Depreciation 19.50 20.03 20.53
    Closing RAB 280.00 285.50 281.47 275.93

    Average RAB 282.75 283.48 278.70

    ACTUAL DEPRECIATION Life Year 1 Year 2 Year 3


    Existing assets (15 years) 15 18.67 18.67 18.67
    New investment in year 1 (30 years) 30 0.83 0.83 0.83
    New investment in year 2 (30 years) 30 0.53 0.53
    New investment in year 3 (30 years) 30 0.50
    New investment in year 4 (30 years) 30
    New investment in year 5 (30 years) 30

    Total depreciation 19.50 20.03 20.53

    FINANCIAL STRUCTURE & COST OF CAPITAL Year 1 Year 2 Year 3


    Equity (%) 60% 60% 60%
    Debt (%) 40% 40% 40%
    Rate of return applied to equity (post-tax) 8.0% 8.0% 8.0%
    Rate of return applied to equity (pre-tax) 12.3% 12.3% 12.3%
    Rate of interest on debt (Rdebt) 4.00% 4.00% 4.00%
    Tax rate on benefits 35% 35% 35%
    WACC (pre-tax) 9.0% 9.0% 9.0%

    ACTUAL OPERATIONAL COSTS (OPEX) Year 1 Year 2 Year 3


    Actual OPEX 10.00 9.80 9.60

    ACTUAL INCOMES SET BY THE REVENUE CAP Year 1 Year 2 Year 3


    Actual revenues 57.02 56.05 55.10

    BALANCE SHEET Year 1 Year 2 Year 3


    Incomes 57.02 56.05 55.10
    Accounting costs 34.02 34.37 34.60
    Operational costs (OPEX) 10.00 9.80 9.60
    Depreciation 19.50 20.03 20.53
    Debt payment (AB * Debt(%) * Rdebt) 4.52 4.54 4.46
    Benefit before taxes 22.99 21.68 20.50
    Taxes (Benefit * Tax rate) 8.05 7.59 7.17
    Benefit after taxes 14.94 14.09 13.32

    ACTUAL REMUNERATION OF EQUITY Present value Year 1 Year 2 Year 3


    Actual equity (AB * Equity (%)) 668.33 169.65 170.09 167.22
    Actual benefit after taxes 53.53 14.94 14.09 13.32
    Actual rate of return on equity after taxes (%) 8.0%

    Make difference PV(equity)*ror - PV(benefit) = 0 - 0.00


    AP

    Year 4 Year 5
    275.93 274.73
    20.00 18.00
    21.20 21.80
    274.73 270.93

    275.33 272.83

    Year 4 Year 5
    18.67 18.67
    0.83 0.83
    0.53 0.53
    0.50 0.50
    0.67 0.67
    0.60

    21.20 21.80

    Year 4 Year 5
    60% 60%
    40% 40%
    8.0% 8.0%
    12.3% 12.3%
    4.00% 4.00%
    35% 35%
    9.0% 9.0%

    Year 4 Year 5
    9.41 9.22

    Year 4 Year 5
    54.16 53.24

    Year 4 Year 5
    54.16 53.24
    35.02 35.39
    9.41 9.22
    21.20 21.80
    4.41 4.37
    19.14 17.85
    6.70 6.25
    12.44 11.60

    Year 4 Year 5
    165.20 163.70
    12.44 11.60

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