Accounting for Infrastructure Regulation: An Introduction

Contents......Page 6
Foreword......Page 10
Acknowledgments......Page 12
Abbreviations......Page 14
1. Why Accounting Information Matters......Page 16
1.1. Objectives of public service regulation......Page 18
1.2. External and internal regulatory information......Page 20
1.3. Limitations of traditional accounting information for regulatory purposes......Page 23
1.4. Information exchange and participation: The need for processes and mechanisms......Page 27
2.1. Case study 1: Privatization of an electricity and water operator in Africa—Initial contract not sufficiently specific......Page 30
2.2. Case study 2: Regulating operators in Latin America—Manual deficiencies led to inconsistent cost accounting by different utilities......Page 33
2.3. Case study 3: Efficient model company regulation in a Latin American country—Deficiencies of benchmarking information and the need for regulatory accounting information......Page 36
3.1. Corporate information systems......Page 42
3.2. Statutory financial statements......Page 44
Additional reading and resources......Page 56
4.1. Objectives of management and cost accounting......Page 58
4.2. Cost classifications......Page 60
4.3. Cost allocation......Page 68
Additional reading and resources......Page 76
5. Why Do Regulatory Accounting?......Page 78
5.1. Regulatory accounting and its objectives......Page 79
5.2. General presentation of information needs......Page 80
5.3. Limitations of traditional and management accounting of the regulated company......Page 83
5.4. Consistency between statutory accounts and regulatory accounts......Page 84
5.5. Regulators’ behavior and principles to follow......Page 85
5.6. Using accounting costs in tariff determination......Page 86
5.7. Regulatory accounting and auditing of regulated companies......Page 92
Additional reading and resources......Page 95
6. Core Issues in Regulatory Accounting......Page 98
6.1. Separation of activities......Page 99
6.2. Regulatory asset base determination......Page 107
6.3. Depreciation policies of the regulatory asset base......Page 113
6.4. Related-party transactions and transfer pricing......Page 117
Additional reading and resources......Page 123
7.1. Contents of regulatory accounting guidelines......Page 126
7.2. Information exchange processes......Page 136
7.3. Need for competencies, tools, and time and methodology......Page 143
7.4. Legitimizing the regulatory methodology......Page 146
Additional reading and resources......Page 147
Annex 1 Understanding Financial Statements: Ratio Analysis......Page 150
Liquidity ratio analysis......Page 151
Activity ratios......Page 152
Capital structure (leverage ratios)......Page 153
Profits and profitability......Page 154
Annex 2 Regulatory Model......Page 156
What are regulatory models?......Page 157
Matching regulatory objectives and instruments......Page 161
What regulators need to know about the operator’s finances......Page 165
Conclusion......Page 166
Australia: Electricity Industry Guideline......Page 170
Australia: Regulatory Accounting Statements—Templates......Page 171
United Kingdom: Ofwat Regulatory Accounting Statements—Templates......Page 182
Perspectives on depreciation......Page 190
Regulatory approaches to depreciation......Page 191
Alternative approaches to depreciation......Page 192
Estimation of asset lives......Page 193
Impact of different approaches to calculating depreciation......Page 194
Principles for depreciation......Page 199
Annex 5 List of Sample Performance Indicators......Page 202
Step 3: Classify indirect costs and allocate cost pools to cost objectives......Page 204
Annex 7 Regulatory Asset Base Valuation......Page 208
Valuation approach......Page 211
Regulatory asset base and accounting......Page 213
Bibliography......Page 220
Index......Page 226