An Introduction to Financial and Economic Modeling for Utility Regulators
The most effective regulators in developing countries are following remarkably similar approaches. The main common element across "best practice" countries is the use of relatively simple quantitative models of operators' behavior an...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/03/2191890/introduction-financial-economic-modeling-utility-regulators http://hdl.handle.net/10986/18275 |
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okr-10986-18275 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ECONOMETRIC MODELS REGULATORY ENVIRONMENTS RATE OF RETURN TARIFFS SUBSIDIES QUALITY INVESTMENTS COST OF CAPITAL CASH FLOW REGULATION EXCHANGE RATES ACCOUNTABILITY ACCOUNTING ACCOUNTING SYSTEMS ALLOCATIVE EFFICIENCY ASSET VALUATION AVERAGE COSTS BALANCE SHEET BASKET OF GOODS BENCHMARKING BENCHMARKS BORROWING CASH FLOWS CD COLLUSION CONSUMERS CONSUMPTION LEVELS CONTRACT ENFORCEMENT CONTRACTUAL ARRANGEMENTS COST MINIMIZATION COST OF CAPITAL CREDIT MARKETS CROSS SUBSIDIES DEBT DEBT COVERAGE DEBT SERVICE DECISION MAKING DECISION VARIABLES DEPRECIATION DEVALUATION ECONOMIC EFFECTS ECONOMIC MODELS ELECTRICITY EMPLOYMENT EQUILIBRIUM EXCHANGE RATE EXTERNALITIES FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL STRUCTURE FORECASTS GDP INCOME INCOME LEVELS INFLATION LABOR MARKETS LEGISLATION LICENSES LONG RUN MARGINAL COST PRICING MACROECONOMIC CONDITIONS MANDATES MARGINAL COST MARGINAL COST PRICING MARGINAL COSTS MARKET PRICES MONOPOLIES OPERATING COSTS OPPORTUNITY COST POLICY INSTRUMENTS PRESENT VALUE PRICE CONTROLS PRICE DISCRIMINATION PRICE LEVELS PRIVATE SECTOR PRIVATIZATION PRODUCT MARKETS PRODUCTIVITY PROFIT RATE PROFITABILITY PROVISION OF INFRASTRUCTURE PUBLIC ENTERPRISES PUBLIC HEARINGS PUBLIC SECTOR PUBLIC SERVICE PUBLIC SERVICES PUBLIC UTILITY REGULATION QUALITY STANDARDS REGULATORY FRAMEWORK REGULATORY OBJECTIVES REGULATORY REGIMES RESOURCE ALLOCATION RISK PREMIUM SALES OF ASSETS SAVINGS SHADOW PRICES SOFT BUDGET CONSTRAINTS TAX TAX SYSTEMS TELECOMMUNICATIONS TOTAL COSTS TRANSPARENCY UTILITIES WHOLESALE PRICE INDEX WILLINGNESS TO PAY EXCHANGE RATES ACCOUNTABILITY |
| spellingShingle |
ECONOMETRIC MODELS REGULATORY ENVIRONMENTS RATE OF RETURN TARIFFS SUBSIDIES QUALITY INVESTMENTS COST OF CAPITAL CASH FLOW REGULATION EXCHANGE RATES ACCOUNTABILITY ACCOUNTING ACCOUNTING SYSTEMS ALLOCATIVE EFFICIENCY ASSET VALUATION AVERAGE COSTS BALANCE SHEET BASKET OF GOODS BENCHMARKING BENCHMARKS BORROWING CASH FLOWS CD COLLUSION CONSUMERS CONSUMPTION LEVELS CONTRACT ENFORCEMENT CONTRACTUAL ARRANGEMENTS COST MINIMIZATION COST OF CAPITAL CREDIT MARKETS CROSS SUBSIDIES DEBT DEBT COVERAGE DEBT SERVICE DECISION MAKING DECISION VARIABLES DEPRECIATION DEVALUATION ECONOMIC EFFECTS ECONOMIC MODELS ELECTRICITY EMPLOYMENT EQUILIBRIUM EXCHANGE RATE EXTERNALITIES FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL STRUCTURE FORECASTS GDP INCOME INCOME LEVELS INFLATION LABOR MARKETS LEGISLATION LICENSES LONG RUN MARGINAL COST PRICING MACROECONOMIC CONDITIONS MANDATES MARGINAL COST MARGINAL COST PRICING MARGINAL COSTS MARKET PRICES MONOPOLIES OPERATING COSTS OPPORTUNITY COST POLICY INSTRUMENTS PRESENT VALUE PRICE CONTROLS PRICE DISCRIMINATION PRICE LEVELS PRIVATE SECTOR PRIVATIZATION PRODUCT MARKETS PRODUCTIVITY PROFIT RATE PROFITABILITY PROVISION OF INFRASTRUCTURE PUBLIC ENTERPRISES PUBLIC HEARINGS PUBLIC SECTOR PUBLIC SERVICE PUBLIC SERVICES PUBLIC UTILITY REGULATION QUALITY STANDARDS REGULATORY FRAMEWORK REGULATORY OBJECTIVES REGULATORY REGIMES RESOURCE ALLOCATION RISK PREMIUM SALES OF ASSETS SAVINGS SHADOW PRICES SOFT BUDGET CONSTRAINTS TAX TAX SYSTEMS TELECOMMUNICATIONS TOTAL COSTS TRANSPARENCY UTILITIES WHOLESALE PRICE INDEX WILLINGNESS TO PAY EXCHANGE RATES ACCOUNTABILITY Estache, Antonio Rodriguez Pardina, Martin Rodriguez, Jose Maria Sember, German An Introduction to Financial and Economic Modeling for Utility Regulators |
| relation |
Policy Research Working Paper;No. 3001 |
| description |
The most effective regulators in
developing countries are following remarkably similar
approaches. The main common element across "best
practice" countries is the use of relatively simple
quantitative models of operators' behavior and
constraints to measure the impact of regulatory decisions on
some key financial and economic indicators of concern to the
operators, the users, and the government. The authors
provide an introduction to the design and use of these
models. They draw on lessons from international experience
in industrial and developing countries in ordinary or
extraordinary revisions and in the context of contract
renegotiations. Simplifying somewhat, these models force
regulators to recognize that, in the long run, private
operators need to at least cover their opportunity cost of
capital, including the various types of risks specific to
the country, the sector, or the projects with which they are
involved. Because these variables change over time,
scheduled revisions are needed to allow for adjustments in
the key determinants of the rate of return of the operator.
These revisions are a recognition of the fact that all these
determinants-tariffs, subsidies, quality, investments, and
other service obligations-are interrelated and jointly
determine the rate of return. At every revision, the rules
of the game for the regulator are exactly the same: to
figure out the changes in the cost of capital and to adjust
the variables driving the rate of return to ensure that it
continues to be consistent with the cost of capital. If they
can draw on reasonable data, these models do everything any
financial model would do for the day-to-day management of a
company but take a longer term view and include an explicit
identification of the key regulatory instruments. They can
monitor the consistency between cash flow generated by the
business on the one hand and debt service and operational
expense needs on the other to address the main concerns of
the operators. They can also account for a large number of
key policy factors including access and affordability
concerns for various types of consumers. They generally
account for the sensitivity of operators and users to
various regulatory design options. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Estache, Antonio Rodriguez Pardina, Martin Rodriguez, Jose Maria Sember, German |
| author_facet |
Estache, Antonio Rodriguez Pardina, Martin Rodriguez, Jose Maria Sember, German |
| author_sort |
Estache, Antonio |
| title |
An Introduction to Financial and Economic Modeling for Utility Regulators |
| title_short |
An Introduction to Financial and Economic Modeling for Utility Regulators |
| title_full |
An Introduction to Financial and Economic Modeling for Utility Regulators |
| title_fullStr |
An Introduction to Financial and Economic Modeling for Utility Regulators |
| title_full_unstemmed |
An Introduction to Financial and Economic Modeling for Utility Regulators |
| title_sort |
introduction to financial and economic modeling for utility regulators |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2003/03/2191890/introduction-financial-economic-modeling-utility-regulators http://hdl.handle.net/10986/18275 |
| _version_ |
1764439519894962176 |
| spelling |
okr-10986-182752021-04-23T14:03:42Z An Introduction to Financial and Economic Modeling for Utility Regulators Estache, Antonio Rodriguez Pardina, Martin Rodriguez, Jose Maria Sember, German ECONOMETRIC MODELS REGULATORY ENVIRONMENTS RATE OF RETURN TARIFFS SUBSIDIES QUALITY INVESTMENTS COST OF CAPITAL CASH FLOW REGULATION EXCHANGE RATES ACCOUNTABILITY ACCOUNTING ACCOUNTING SYSTEMS ALLOCATIVE EFFICIENCY ASSET VALUATION AVERAGE COSTS BALANCE SHEET BASKET OF GOODS BENCHMARKING BENCHMARKS BORROWING CASH FLOWS CD COLLUSION CONSUMERS CONSUMPTION LEVELS CONTRACT ENFORCEMENT CONTRACTUAL ARRANGEMENTS COST MINIMIZATION COST OF CAPITAL CREDIT MARKETS CROSS SUBSIDIES DEBT DEBT COVERAGE DEBT SERVICE DECISION MAKING DECISION VARIABLES DEPRECIATION DEVALUATION ECONOMIC EFFECTS ECONOMIC MODELS ELECTRICITY EMPLOYMENT EQUILIBRIUM EXCHANGE RATE EXTERNALITIES FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL STRUCTURE FORECASTS GDP INCOME INCOME LEVELS INFLATION LABOR MARKETS LEGISLATION LICENSES LONG RUN MARGINAL COST PRICING MACROECONOMIC CONDITIONS MANDATES MARGINAL COST MARGINAL COST PRICING MARGINAL COSTS MARKET PRICES MONOPOLIES OPERATING COSTS OPPORTUNITY COST POLICY INSTRUMENTS PRESENT VALUE PRICE CONTROLS PRICE DISCRIMINATION PRICE LEVELS PRIVATE SECTOR PRIVATIZATION PRODUCT MARKETS PRODUCTIVITY PROFIT RATE PROFITABILITY PROVISION OF INFRASTRUCTURE PUBLIC ENTERPRISES PUBLIC HEARINGS PUBLIC SECTOR PUBLIC SERVICE PUBLIC SERVICES PUBLIC UTILITY REGULATION QUALITY STANDARDS REGULATORY FRAMEWORK REGULATORY OBJECTIVES REGULATORY REGIMES RESOURCE ALLOCATION RISK PREMIUM SALES OF ASSETS SAVINGS SHADOW PRICES SOFT BUDGET CONSTRAINTS TAX TAX SYSTEMS TELECOMMUNICATIONS TOTAL COSTS TRANSPARENCY UTILITIES WHOLESALE PRICE INDEX WILLINGNESS TO PAY EXCHANGE RATES ACCOUNTABILITY The most effective regulators in developing countries are following remarkably similar approaches. The main common element across "best practice" countries is the use of relatively simple quantitative models of operators' behavior and constraints to measure the impact of regulatory decisions on some key financial and economic indicators of concern to the operators, the users, and the government. The authors provide an introduction to the design and use of these models. They draw on lessons from international experience in industrial and developing countries in ordinary or extraordinary revisions and in the context of contract renegotiations. Simplifying somewhat, these models force regulators to recognize that, in the long run, private operators need to at least cover their opportunity cost of capital, including the various types of risks specific to the country, the sector, or the projects with which they are involved. Because these variables change over time, scheduled revisions are needed to allow for adjustments in the key determinants of the rate of return of the operator. These revisions are a recognition of the fact that all these determinants-tariffs, subsidies, quality, investments, and other service obligations-are interrelated and jointly determine the rate of return. At every revision, the rules of the game for the regulator are exactly the same: to figure out the changes in the cost of capital and to adjust the variables driving the rate of return to ensure that it continues to be consistent with the cost of capital. If they can draw on reasonable data, these models do everything any financial model would do for the day-to-day management of a company but take a longer term view and include an explicit identification of the key regulatory instruments. They can monitor the consistency between cash flow generated by the business on the one hand and debt service and operational expense needs on the other to address the main concerns of the operators. They can also account for a large number of key policy factors including access and affordability concerns for various types of consumers. They generally account for the sensitivity of operators and users to various regulatory design options. 2014-05-12T21:03:44Z 2014-05-12T21:03:44Z 2003-03 http://documents.worldbank.org/curated/en/2003/03/2191890/introduction-financial-economic-modeling-utility-regulators http://hdl.handle.net/10986/18275 English en_US Policy Research Working Paper;No. 3001 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |