This document summarizes a webinar on revenue requirements and the regulatory asset base (RAB) for price regulation. It discusses how regulators set revenue requirements by determining allowable operating expenditures and capital costs, including depreciation and return on the RAB. It also describes approaches to calculating the RAB, including treatments of investments, working capital, and asset valuation methods like historic cost and replacement cost.

1. Training on Regulation A webinar for the European Copper Institute Webinar 4: Revenue Requirements and Regulatory Asset Base (RAB) Dr. Konstantin Petrov / Dr. Daniel Grote 30.11.2009

2. Agenda 2. Revenue Components 4. Asset Valuation 1. Introduction 3. Regulatory Asset Base (RAB)

3. 1. Introduction Price Control – Regulatory Tasks Setting revenue requirements / cost determination Decision on regulatory regime Setting annual efficiency target Tariff design Webinar 4 - Revenue Requirements and RAB Webinar 3 - Price Regulation Webinar 8 - Pricing Webinar 6 - Efficiency Assessment Calculation of regulatory asset base Rate-of-Return, Cap Regulation, Sliding Scale, Yardstick Competition Data Envelopment Analysis, econometric approaches, reference network models Tariff structures, cost allocation Webinar 5 – Cost of Capital Calculation of allowed rate of return

6. 1. Introduction Price Control – Revenue Requirements Opex Capital costs Revenue Requirements Regulatory Asset Base (RAB) Rate of Return Revenue Requirements = Opex + Depreciation + (RAB ● Rate of Return) Operation and Maintenance Network Losses Fuel (in case of regulated generation) Return on Assets Depreciation

9. 2. Revenue Components Depreciation straight-line method declining-balance method time 10 years 20 years remaining asset value Initial asset value depreciation time 10 years 20 years remaining asset value Initial asset value depreciation

12. 3. Regulatory Asset Base (RAB) Components Regulatory Asset Base Existing Assets New Investments RAB roll forward / revenue re-setting Depreciation Capital Contribution Working Capital Construction Works in Progress RAB Closing Value = RAB Opening Value + Investments – Depreciation – Asset Disposal +/- Change of Working Capital +/-Change of Capital Contribution