RPI-X: Forecasting costs. Regulation and Competition John Cubbin. Overview. How do we work out financing requirement for a regulated natural monopoly?. Elements of cash flow model. Operating expenditures Maintenance, repairs, operation, customer transactions, central operations
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Regulation and Competition
Cost of capital
Put in arrows to show main effects
Electrical system costs:
optimal layout given demand patterns
number and distribution of customers
maximum demand at various points
provision for responding to faults, repairs, damage, etc.
deviations of actual from optimal
growth, churn, etc.
Non system costs
Billing, finance, regulation
some fixed elements, other related to customer numbers
Some of these are related to number of customers, some to demand or network complexity/length, some to overheads
Requirement is usually to allow an efficient form to finance its activities
What if a firm is inefficient?
(and what do we mean by this anyway?)
Cost of growth
Cost driverThe frontier
Combination of cross section and time series? (panel data)
Some scope for international comparisons, limited by data definition issues.
Component Relative weight
Network length 0.25
In order to assess the potential savings available to each PES, a number of techniques were applied as follows:
—a cost per network kilometre benchmark of £575 per km, based on costs from four "top" PESs;
—"engineering cost" based on a profile of its network assets using a best practice cost per asset;
—comparison of historic savings achieved -- four of the top PESs achieved savings in engineering costs of up to 40 per cent from 1994/95 to 1997/98: in addition, the extent of savings in costs from 1990/91 to 1994/95 was also considered;
—a review of each PES’s engineering organisational structures, field efficiency and operating practices;
Informed by analysis of past reviews
How well did companies forecast?
How far did they all surpass targets?
How well did efficiency scores predict efficiency gains?