CONSULTATION PAPER THE DISCOUNT RATE METHODOLOGY FOR LICENSED ELECTRICITY DISTRIBUTORS PUBLISHED ON 19 SEPTEMBER 2017
|
|
- Grace McGee
- 5 years ago
- Views:
Transcription
1 CONSULTATION PAPER THE DISCOUNT RATE METHODOLOGY FOR LICENSED ELECTRICITY DISTRIBUTORS PUBLISHED ON 19 SEPTEMBER 2017
2 Table of Contents Abbreviations and acronyms... 3 Definitions... 3 Executive summary Background The definition and function of the discount rate Discount rate methodologies Weighted Average Cost of Capital (WACC) for Licensed Electricity Distributors 6 4. The discount rate application by Licensed Electricity Distributors The use of alternative discount rate methodologies for Licensed Electricity Distributors Appendix A: Beta calculation method for Licensed Electricity Distributors Page 2 of 14
3 Abbreviations and acronyms ALSI BYPRP CAPM COC DBSA JSE LCC MRP NERSA NPC ROE SARB SARS WACC All Share Total Index Bond Yield Price Plus Risk Premium Capital Asset Pricing Method Cost of Capital Development Bank of South Africa Johannesburg Stock Exchange Life Cycle Costs Market Risk Premium National Energy Regulator of South Africa Net Present Cost Return on Equity South African Reserve Bank South African Revenue Services Weighted Average Cost of Capital Definitions Codes Distribution Network Licensed Electricity Distributors South African Grid Code means the Distribution Code, the Grid Code, or any other code, published by NERSA, as applicable and amended, modified, extended, replaced or re-enacted from time to time. means the distribution network of any distributor that operates at a nominal voltage of 132kV or less, as described in the Codes, as that the system may be refurbished, modified, extended or developed from time to time. refers to Municipal and Private electricity distributors licensed by NERSA means the set of documents entitled South African Grid Code published by NERSA in July 2010, version as amended, modified, extended, replaced or re-enacted from time to time. Page 3 of 14
4 Executive summary The National Energy Regulator (NERSA) is a regulatory authority established as a juristic person in Terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA's mandate includes the regulation of the electricity supply industry. According to Section 4(ii) of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) ( the ERA ), the Energy Regulator must regulate electricity prices and tariffs. NERSA is the administrative authority for the South African Grid Code ( the Grid Code ) in terms of sections 35(1) and 14(t) of the Electricity Regulation Act, 2006 (Act No. 4 of 2006). In accordance with the Act, NERSA shall ensure that the Grid Code is developed, implemented and complied with for the benefit of the industry. The licensees are required to use a NERSA-approved process to determine the Discount Rate in order to ensure that the networks are planned and built in accordance with the Grid Code requirements. These requirements also aims to ensure an orderly and economic expansion of the network infrastructure to meet future electricity demand with an acceptable level of reliability. In support of the above Code, NERSA is requesting the stakeholders to comment on the proposed Discount Rate Methodology for Licensed Electricity Distributors as set out in this consultation paper. The comments should be addressed to: Ms Nokukhanya Ndlovu at the National Energy Regulator, Kulawula House, 526 Madiba Street, Arcadia, Pretoria or ed to: discountrate@nersa.org.za. The deadline for the submission of comments is 20 October NERSA will hold a public hearing wherein presentations may be made by interested and affected parties. After the public hearing, NERSA will consolidate all comments and a decision on the methodology will be made and published. Page 4 of 14
5 1. BACKGROUND Section (6) of the Distribution Network Code and Section 7.7 (5) of the Transmission Network Code requires that the Discount Rate, as an economic parameter used by licensees in the distribution network planning studies, shall be determined using a NERSA-approved process. 2. THE DEFINITION AND FUNCTION OF THE DISCOUNT RATE The discount rate is the minimum cost (in percentage) that can be incurred by the company (licensee) in raising the capital. Alternatively, the discount rate is a minimum return that a company must earn on an existing asset base to satisfy its creditors, owners and other providers of capital. In network distribution planning, the discount rate is one of the main financial inputs used to calculate the life cycle cost (LCC) of the projects undertaken by the licensees. Used as one of the decision making tool, the LCC is calculated using the net present costs (NPCs) associated with the projects such as capital, operation and maintenance costs as well as technical losses. The NPCs are calculated by discounting the costs and value of the various alternatives/options of the project using the discount rate. An option with the least LCC is then chosen as best solution by the planners. The least LCC criteria is the most satisfactory criterion used by planners to justify projects and to make investment decisions in an operating environment characterised by the limited financial resources. As a result, obtaining an appropriate estimation of the discount rate is necessary and important given the role it plays in influencing the investment decision taken by the licensees to upgrade and refurbish networks at a distribution level. 3. DISCOUNT RATE METHODOLOGIES There are various methodologies of estimating and interpreting the concept of discount rate; all of which have various advantages and disadvantages. The approach followed by NERSA in developing the discount rate methodology for Licensed Electricity Distributors was the desktop research, which entailed examination of papers inclusive of methodologies used by regulators to determine the discount rate for tariff regulated licensees. The two discount rate methodologies were identified, namely: Weighted Average Cost of Capital (WACC) The WACC methodology is a popular method for determining the discount rate, adopted by many regulators. This methodology has already been endorsed by Page 5 of 14
6 NERSA in the determination Eskom s discount rate in its Multi-Year Price Determination (MYPD). WACC is determined by estimating the cost of debt and equity, then multiplying these costs with the weights of the capital components. Cost of capital (COC) The COC 1 methodology was developed by the Ontario Energy Board to determine the discount rate for rate-regulated entities. The COC methodology calculates the discount rate using the following parameters, namely the formula-based return on equity (ROE), the deemed long-term and short-term debt rates, as well as weightings of the respective COC parameters in the capital structure. The WACC and COC methodologies determine the cost of debt as the sum of the riskfree rate determined using the nominal government bond rate; and the spread between the licensee s bond rate and risk-free rate. Licensed Electricity Distributors such as small municipalities are not raising debt capital through bond issuance, which will make it difficult to determine the cost of debt using this principle. WACC uses several approaches to estimate the cost of equity. In deriving the formulabased ROE, which serves as proxy for the cost of equity capital, the COC methodology assumes that the regulated licensee use bonds to raise debt capital, which is not the case for some Licensed Electricity Distributors. However, limitations associated with WACC and COC methodologies does not prove the concepts futile. Both these methodologies can be used under different circumstances by making minor adjustments, for the benefit of all the Licensed Electricity Distributors. WACC is the recommended method of determining the discount rate for Licensed Electricity Distributors. 3.1 Weighted Average Cost of Capital (WACC) for Licensed Electricity Distributors The proposed WACC methodology assumes the same principles as the abovementioned methodologies only the processes of determining the WACC parameters have been modified to cater for the diverse characteristics of the Licensed Electricity Distributors, made up of the municipalities and private electricity distributors. 1 Detailed process of the COC methodology can be accessed at: Page 6 of 14
7 The formula for the WACC methodology is given by: WACC = [Kd ( D D + E )] + [ Ke 1 tc ( E D + E )] Where: Kd = cost of debt before tax D = debt E = equity Ke = cost of equity after tax tc = company tax rate It should be noted that the standardised WACC formula has been provided with the intention of accommodating the diverse characteristics of the Licensed Electricity Distributors. The Licensed Electricity Distributors will only input parameters applicable to their operational conditions, as follows: a) Licensed Electricity Distributors without equity will be required to calculate the discount rate as the cost of debt only. b) Licensed Electricity Distributors without debt will be required to calculate the discount rate as the cost of equity only. c) Licensed Electricity Distributors not paying company tax must input zero for tc in the WACC formula Nominal cost of debt before tax The nominal cost of debt refers to the total cost or rate of interest to be paid by Licensed Electricity Distributors in raising the debt capital. The nominal cost of debt is calculated as the sum of the risk-free rate (Rf) and the debt/default premium (Dp). Alternatively, the estimate of the cost of debt may also be sourced from the lenders Risk-free rate The risk-free rate for Licensed Electricity Distributors can be determined using the nominal government bond with at least 10-year maturity. The 10-year nominal government bond rate for the preceding 30 days average starting from the day of determining the discount rate should be used to estimate the risk-free rate. Stakeholder Comment # 1 Stakeholders are invited to comment on whether it is appropriate to determine the risk-free rate using the 10-year nominal government bond rate, including the timeframe to be considered for the estimation purpose. Page 7 of 14
8 Debt/Default premium The debt/default premium is the additional amount that the borrower must pay to compensate the lender for assuming default risk. The debt premium for Licensed Electricity Distributors with bonds can be estimated as the spread between the 10- year nominal government bond rate in and the licensee bond rate with a 10- year maturity. The majority of the Licensed Electricity Distributors are not active in the bond market, hence the loans acquired from banks [for example the Big Four Banks and the Development Bank of South Africa (DBSA)] serves as one of the main sources of debt capital. In the absence of bond issuance, the default premium can be estimated using the weighted average of the default premium rates sourced from lending banks. As the lenders/debt providers, banks using the risk rating models are in a better position to provide an appropriate estimate of the default premium rates for Licensed Electricity Distributors. Stakeholder Comment # 2 Stakeholders are invited to comment on the proposed methods of determining the default/debt premium and whether it is appropriate to source the default premium rates from the banks issuing loans to the respective Licensed Electricity Distributors Debt and equity capital The debt and equity values can be sourced from the latest annual financial information of the Licensed Electricity Distributors using the ring-fenced electricity distribution activities as reported in the Electricity Distribution Forms (D-forms). Stakeholder Comment # 3 Stakeholders are invited to comment on whether it is appropriate to use the debt and equity figures sourced from the D-forms of the Licensed Electricity Distributors to determine the discount rate Nominal cost of equity after tax In addition to debt capital, private electricity distributors source additional capital from shareholders while municipal electricity distributors source it from the public contribution, donations, grants and subsidies as well as internal income. The municipalities as the Licensed Electricity Distributors may not be required to provide monetary incentive to the capital providers for the funds provided, as a result only the cost of debt may be used as the discount rate. Page 8 of 14
9 All the approaches contained in this consultation paper may be used to estimate the cost of equity, assuming that all the equity capital providers will expect a return on funds provided. The Licensed Electricity Distributors will only be expected to adopt an approach in line with their operational conditions. The cost of equity may be estimated using several methodologies, namely: Dividend Growth Model; Price-Earnings Ratio; Bond Yield Plus Risk Premium (BYPRP); Capital Asset Pricing Model (CAPM); and Formula-based ROE The first two models, namely the Dividend Growth and Price-Earnings Ratio can be adopted by the Licensed Electricity Distributors listed in the stock exchange given that the share price is one of the inputs required for the estimation of the cost of equity using these approaches The BYPRP approach determines the cost of equity as the sum the observable yield on the licensee s long-term bond and the judgemental risk premium. The judgemental risk premium can be determined by the Licensed Electricity Distributors considering operational and business risks and it usually ranges from 3 to 5 per cent The CAPM is the popular and generally accepted approach of determining the cost of equity, calculated as follows: Ke = Rf + (β MRP) Where: Rf = Risk-free rate The risk-free rate is 10-year nominal government bond rate as determined under β = Beta Beta is available for listed Licensed Electricity Distributors. For the unlisted Licensed Electricity Distributors, beta can be estimated using a proxy, which is determined by considering an average of at least six companies that operate as electricity distributors. The companies to be considered must be Page 9 of 14
10 listed in the stock exchange and have beta value. The methodology used to determine the beta is set out in Appendix A. MRP = Market risk premium The MRP can be estimated using the recent MRP studies conducted by credible entities (for example Credit Suisse) and/or calculated as a difference between the market return on the Johannesburg Stock Exchange (JSE) All Share Total Index (ALSI) and risk-free rate The formula-based ROE is used by other regulators and is based on the principles of BYPRP with some adjustments. The formula-based ROE is calculated as: Base ROE + 0.5(change in Risk free rate) + 0.5(change in debt premium) Where: Base ROE is sum the current risk-free rate as determined in and judgemental risk premium. Change in the risk-free rate is calculated as the current risk-free rate minus riskfree rate of the base period. Change in the debt/default premium is calculated as the current debt premium as determined in minus the debt premium for the base period. Base period is the period in the previous year corresponding to the current period of determining the discount rate. All of the abovementioned approaches of estimating the cost of equity are generally accepted. The private electricity distributors can use any of the approaches in line with their operational conditions. If municipal electricity distributors need to calculate the cost of equity, the BYPRP and/or formula-based ROE approach can be adopted. Stakeholder Comment # 4 Stakeholders are invited to comment on whether it is appropriate for Licensed Electricity Distributors to adopt any of the abovementioned approaches of estimating the cost of equity Company tax rate The applicable company tax rate sourced from the South African Revenue Services (SARS) should be used by Licensed Electricity Distributors to determine the discount rate. The Licensed Electricity Distributor not paying company tax should input zero for company tax rate (tc) in the WACC formula. Page 10 of 14
11 3.1.5 Inflation The nominal WACC before tax derived by following the abovementioned steps can be converted to real WACC using the 1-year inflation rate forecast from an independent source. Stakeholder Comment # 5 Stakeholders are invited to comment on whether it is appropriate to use the estimated inflation rate to convert nominal rates to real rates Real WACC before tax The real WACC before tax determined using the abovementioned steps is the discount rate for the Licensed Electricity Distributors. The Licensed Electricity Distributors will be required to update the real discount rate on an annual basis. Stakeholder Comment # 6 Stakeholders are invited to comment on whether it is appropriate for Licensed Electricity Distributors to update the real discount rate before tax on an annual basis. 4. THE DISCOUNT RATE APPLICATION BY LICENSED ELECTRICITY DISTRIBUTORS The discount rate derived from the WACC methodology should be used by Licensed Electricity Distributors in the distribution planning processes to discount costs, which are considered in the calculation of the LCC of the projects. The Grid Code requirements state that the licensees must use the least LCC 2 approach to justify projects and to make investment decisions. However, it should be noted that the least LCC approach is not used in isolation as the technical criteria must also be satisfied for projects to be approved and undertaken by the Licensed Electricity Distributors. Stakeholder Comment # 7 Stakeholders are invited to comment on whether the proposed application of the discount rate in the respective distribution planning processes is appropriate. 2 The application of the least life cycle cost criteria depends on the type of project undertaken by the Licensed Electricity Distributor. Page 11 of 14
12 5. THE USE OF ALTERNATIVE DISCOUNT RATE METHODOLOGIES FOR LICENSED ELECTRICITY DISTRIBUTORS The WACC methodology as presented in this paper is the preferred methodology of determining the discount rate for Licensed Electricity Distributors. However, the Licensed Electricity Distributors are not prohibited from considering any discount rate determination methodology that is deemed appropriate. However, if the Licensed Electricity Distributors decide to use any methodology other than the WACC recommended in this consultation paper, the chosen methodology must be submitted to NERSA for review and approval prior to implementation. Stakeholder Comment # 8 Stakeholders are invited to comment on whether it is appropriate to allow Licensed Electricity Distributors to use alternative methodologies of determining the discount rate, provided that the proposed methodology is submitted to NERSA for review and approval prior to implementation. ---END--- Page 12 of 14
13 Appendix A: Beta calculation method for Licensed Electricity Distributors For Licensed Electricity Distributors not publicly listed, the equity beta may be derived from a proxy beta. To make adjustments for differences in gearing between the proxy and the Licensed Electricity Distributor, the process involves unlevering and re-levering as follows: Obtaining the equity beta for the proxy company. Un-levering the beta of the proxy company by the gearing level of the proxy company. This unlevered beta is known as the asset beta. Calculating the weighted average of the asset betas for the chosen proxy companies. Re-levering the average asset beta by the capital structure of the Licensee Electricity Distributor. Note The Harris and Pringle formula, which excludes the tax shields in the notation, will be used. The following steps must be followed: Step 1 Calculate asset beta (or un-levered beta) for proxy firms The following formula must be used to determine the asset beta: βa1 = β1 1 + [ D E ] Where: βa1 = Asset beta for proxy company 1 β1 = Beta of proxy company 1 D = Debt of proxy company 1 E = Equity of proxy company 1 Note: Repeat step 1 for each of the 6 (or more) chosen proxy firms. Page 13 of 14
14 Step 2 Calculate weighted average asset beta of proxy firms Weigh each of the 6 (or more) proxy firm asset betas by their proportion of the total debt plus equity of the 6 (or more) proxy firms and sum the results using the following formula: n (D + E)n BaE = [ ( n ) (Ba1)n ] (D + E)n n=1 n=1 n Where: BaE = Weighted average asset beta of the proxy companies (D + E)n = Sum of the debt and equity for a specific proxy company (Ba1)n = Asset beta of the corresponding specific proxy company n n=1 (D + E)n = Sum of debt and equity for all proxy companies n = Number of proxy companies Step 3 Calculation of beta (β) for the Licensed Electricity Distributor. (Re-levering of beta). The following formula must be used to determine the beta for the Licensed Electricity Distributor: βl = βae [1 + D E ] Where: βl = Beta of the Licensed Electricity Distributor βae = The weighted average β of the proxy firms asset betas from Step 2. D = The debt of the Licensed Electricity Distributor E = The equity of the Licensed Electricity Distributor Page 14 of 14
APPROVAL OF TARIFF METHODOLOGIES FOR USE IN THE PETROLEUM PIPELINES INDUSTRY. THE DECISION
ENERGY REGULATOR OF SOUTH AFRICA In the matter regarding APPROVAL OF TARIFF METHODOLOGIES FOR USE IN THE PETROLEUM PIPELINES INDUSTRY. THE DECISION On 31 March 2011 the Energy Regulator approved the following
More informationFrequently Asked Questions (FAQ): Tariff Methodology for the Setting and Approval of Tariffs in the. Petroleum Pipelines Industry.
Frequently Asked Questions (FAQ): Tariff Methodology for the Setting and Approval of Tariffs in the Petroleum Pipelines Industry Approved 24 August 2017 Table of Contents Page Glossary of Terms and Abbreviations......4
More informationANNEXURE 1. Consultation Paper
ANNEXURE 1 MUNICIPAL TARIFF GUIDELINE INCREASE, BENCHMARKS AND PROPOSED TIMELINES FOR MUNICIPAL TARIFF APPROVAL PROCESS FOR THE 2018/19 FINANCIAL YEAR Consultation Paper Published on 28 February 2018 Table
More informationANNEXURE 1. Consultation Paper
ANNEXURE 1 MUNICIPAL TARIFF GUIDELINE INCREASE, BENCHMARKS AND PROPOSED TIMELINES FOR MUNICIPAL TARIFF APPROVAL PROCESS FOR THE 2017/18 FINANCIAL YEAR Consultation Paper 23 February 2017 TABLE OF CONTENTS
More informationNERSA CONSULTATION PAPER: ESKOM MULTI-YEAR PRICE DETERMINATION METHODOLOGY
NERSA CONSULTATION PAPER: ESKOM MULTI-YEAR PRICE DETERMINATION METHODOLOGY Published on: 14 October 2011 TABLE OF CONTENTS Page Abbreviations and Acronyms... 3 1 The Consultation Process... 5 2 Introduction...
More informationRegistration application fee to be paid by Small-Scale Embedded Generator Applicants
Consultation Paper: Registration application fee to be paid by Small-Scale Embedded Generator Applicants Published 16 December 2018 Version 1 December 2018 Issued by The National Energy Regulator of South
More informationFrequently Asked Questions (FAQ): Tariff Methodology for the Setting and Approval of Tariffs in the. Petroleum Pipelines Industry.
Frequently Asked Questions (FAQ): Tariff Methodology for the Setting and Approval of Tariffs in the Petroleum Pipelines Industry Approved on 26 May 2016 Frequently Asked Questions (FAQ): Tariff Methodology
More informationa tariff for the period 01 January 2012 to 31 March 2012 as follows; GTA Tariffs for period 01 January March TARIFF VOLUME
ENERGY REGULATOR OF SOUTH AFRICA In the matter regarding Transnet Pipelines gas transmission tariff assessment for the pipeline from Secunda to Durban south (Lilly pipeline) for the period 01 January 2012
More information1. INTRODUCTION 2. APPLICABLE LAW
Consultation document regarding the Republic of Mozambique Pipeline Investments Company (ROMPCO) pipeline s preliminary gas transmission tariff determination for 2011/12. 1. INTRODUCTION 1.1 The Energy
More informationTransnet National Ports Authority Tariff Methodology: Position Paper Ports Regulator: Road Shows March delivering freight reliably
Transnet National Ports Authority Tariff Methodology: Position Paper Ports Regulator: Road Shows March 2013 delivering freight reliably Vision for South African Ports A system of ports, seamlessly integrated
More informationNERSA STORAGE AND LOADING FACILITIES MODEL. November 2008
NERSA STORAGE AND LOADING FACILITIES MODEL November 2008 1 OVERVIEW Legal Mandate Tariff Approaches Allowable Revenue Assessment of Tariff Applications Questions and Discussions 2 LEGAL MANDATE Section
More informationEskom Revenue Application. Multi Year Price Determination. 2010/11 to 2012/13 (MYPD 2)
Issues Paper Eskom Revenue Application Multi Year Price Determination 2010/11 to 2012/13 (MYPD 2) Published on 30 October 2009 1 TABLE OF CONTENTS Abbreviations... 3 Definitions... 4 1. Introduction...6
More informationTRANSNET PETROLEUM PIPELINES TARIFF APPLICATION FOR THE YEAR 2011/12 (01 APRIL 2011 TO 31 MARCH 2012)
TRANSNET PETROLEUM PIPELINES TARIFF APPLICATION FOR THE YEAR 2011/12 (01 APRIL 2011 TO 31 MARCH 2012) Table of Contents 1 Executive Summary... 5 2 Background... 8 3 Approach... 9 4 Regulatory Asset Base
More informationEthel Teljeur, Fulltime Regulator Member Primarily Responsible for Piped-gas; and. Robert Opini, Advisor, Regulatory Reporting. NERSA South Africa
Ethel Teljeur, Fulltime Regulator Member Primarily Responsible for Piped-gas; and Robert Opini, Advisor, Regulatory Reporting NERSA South Africa Boosting Investor Confidence: The Role of Regulators The
More informationTRANSNET SOC LTD: TARIFF APPLICATION FOR THE LICENCED PIPED GAS TRANSMISSION FACILITY FOR THE 2016/17 TARIFF YEAR
TRANSNET SOC LTD: TARIFF APPLICATION FOR THE LICENCED PIPED GAS TRANSMISSION FACILITY FOR THE 2016/17 TARIFF YEAR 1 Contents 1 Executive Summary... 6 2 Background... 8 3 Approach... 9 4 Regulatory Asset
More informationOPERATING MANUAL: NERSA s STORAGE TARIFF MODEL
OPERATING MANUAL: NERSA s STORAGE TARIFF MODEL According to Section 28 (1) of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003): The Authority must set as a condition of license the tariffs to be
More informationNATIONAL ENERGY REGULATOR TARIFF METHODOLOGY FOR THE APPROVAL OF TARIFFS FOR PETROLEUM LOADING FACILITIES AND PETROLEUM STORAGE FACILITES
NATIONAL ENERGY REGULATOR TARIFF METHODOLOGY FOR THE APPROVAL OF TARIFFS FOR PETROLEUM LOADING FACILITIES AND PETROLEUM STORAGE FACILITES 2 nd Edition Approved: 31 March 211 Tariff Methodology for Petroleum
More informationDRAFT TARIFF DETERMINATION for TRANSNET LIMITED PETROLEUM PIPELINES SYSTEM for 2012/13
DRAFT TARIFF DETERMINATION for TRANSNET LIMITED PETROLEUM PIPELINES SYSTEM for 2012/13 The Energy Regulator is publishing this document for public comment. This draft tariff determination uses numbers
More informationMYPD Methodology Eskom Response to Consultation Paper
MYPD Methodology Eskom Response to Consultation Paper 2 June 2016 Introduction Eskom is pleased to provide comments Eskom has provided detailed responses to the consultation paper on the review of the
More informationEskom RCA applications M o r n è M o s t e r t M a y
2018 M o r n è M o s t e r t M a y 2 0 1 8 A F R I F O R U M AfriForum NPC (a non-profit company) registered in South Africa with, among other aims, constructive participation in matters of Government,
More informationTRANSNET PETROLEUM PIPELINES TARIFF APPLICATION FOR THE YEAR 2012/13 (01 APRIL 2012 TO 31 MARCH 2013)
TRANSNET PETROLEUM PIPELINES TARIFF APPLICATION FOR THE YEAR 2012/13 (01 APRIL 2012 TO 31 MARCH 2013) Table of Contents 1 Executive Summary... 5 2 Background... 8 3 Approach... 9 4 Regulatory Asset Base
More informationOFFICE OF CAREER SERVICES INTERVIEWS FINANCIAL MODELING
OFFICE OF CAREER SERVICES INTERVIEWS FINANCIAL MODELING Basic valuation concepts are among the most popular technical tasks you will be asked to discuss in investment banking and other finance interviews.
More informationCOST OF CAPITAL
COST OF CAPITAL 2017 1 Introduction Cost of Capital (CoC) are the cost of funds used for financing a business CoC depends on the mode of financing used In most cases a combination of debt and equity is
More informationTRANSMISSION TARIFF METHODOLOGY FOR THE WEST AFRICAN POWER POOL
AUTHORIDADE REGIONAL REGULADORA DE ELETRICIDADE DA CEDEAO ECOWAS REGIONAL ELECTRICITY REGULATORY AUTHORITY AUTORITÉ DE RÉGULATION RÉGIONALE DU SECTEUR DE L ÉLECTRICITÉ DE LA CEDEAO TRANSMISSION TARIFF
More informationChevron Oil South Africa (Pty) Limited
Chevron Oil South Africa (Pty) Limited NERSA s Storage Tariff Submission: Tariffs applicable for 2012/2013 For Waltloo and East London depots Initial submission 17 October 2011 Resubmission 10 August 2012
More informationGUIDELINE DOCUMENT TO MUNICIPALITIES ON THE DESIGN OF A DOMESTIC INCLINING BLOCK RATE TARIFF
GUIDELINE DOCUMENT TO MUNICIPALITIES ON THE DESIGN OF A DOMESTIC INCLINING BLOCK RATE TARIFF 1. BACKGROUND AND APPROACH 1.1. During the National Energy Regulator of South Africa (NERSA) stakeholder consultation
More informationEASIGAS PTY (LTD) NIGEL S STORAGE FACILITY TARIFF APPLICATION FOR THE YEARS Nigel Storage Facility
EASIGAS PTY (LTD) NIGEL S STORAGE FACILITY TARIFF APPLICATION FOR THE YEARS 2015 Nigel Storage Facility 2015 Page 1 Table of Contents 1. Introduction 5 2. Executive Summary 6/7 3. Approach 7/8 4. Regulatory
More informationNATIONAL ENERGY REGULATOR OF SOUTH AFRICA
NATIONAL ENERGY REGULATOR OF SOUTH AFRICA In the matter regarding DETERMINATION OF THE MUNICIPAL TARIFF GUIDELINE AND THE REVISION OF MUNICIPAL TARIFF BENCHMARKS FOR THE FINANCIAL YEAR 2011/12 DECISION
More informationNATIONAL ENERGY REGULATOR OF SOUTH AFRICA
In the matter regarding NATIONAL ENERGY REGULATOR OF SOUTH AFRICA DETERMINATION OF THE MUNICIPAL TARIFF GUIDELINE FOR THE FINANCIAL YEAR 2013/14 AND THE REVISION OF MUNICIPAL TARIFF BENCHMARKS DECISION
More informationNATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA)
NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA) In the matter regarding REVIEW OF THE GUIDELINES FOR MONITORING AND APPROVING TRANSMISSION AND STORAGE TARIFFS IN THE PIPED-GAS INDUSTRY IN SOUTH AFRICA
More informationPPA & REFIT. by Andile Gxasheka, RE Specialist. NERSA South Africa
PPA & REFIT by Andile Gxasheka, RE Specialist NERSA South Africa NERSA Mandate The mandate is derived from the objectives of the Electricity Regulation Act, No 40 of 2006 as follows: promote the use of
More informationWEIGHTED AVERAGE COST OF CAPITAL
WEIGHTED AVERAGE COST OF CAPITAL Ali Rıza DİNÇ Electricity Tariffs Group Head Energy Market Regulatory Authority Turkey Nature of WACC Weighted average cost of sources used by the regulated company Return
More informationBrochure on Eskom s Policy for granting the benefit of diversity. July 2013
Brochure on Eskom s Policy for granting the benefit of diversity July 2013 Brochure on Eskom s policy for Granting the benefit of diversity 2 Contents Eskom Policy on granting the benefit of diversity...
More information2013, Study Session #11, Reading # 37 COST OF CAPITAL 1. INTRODUCTION
COST OF CAPITAL 1 WACC = Weighted Avg. Cost of Capital MCC = Marginal Cost of Capital TCS = Target Capital Structure IOS = Investment Opportunity Schedule YTM = Yield-to-Maturity ERP = Equity Risk Premium
More informationCONSULTATION PAPER ON THE REVIEW OF INCLINING BLOCK TARIFFS FOR ELECTRICITY DISTRIBUTORS
CONSULTATION PAPER ON THE REVIEW OF INCLINING BLOCK TARIFFS FOR ELECTRICITY DISTRIBUTORS Published on 21 September 2012 Page 1 of 41 TABLE OF CONTENTS 1. Introduction... 4 2. NERSA Mandate... 5 3. Background...
More information1. Cost of Capital: Auckland International Airport Ltd s Disclosure Financial Statements for the year ended 30 June 2007
26 September 2011 Simon Robertson Chief Financial Officer Auckland International Airport Limited PO Box 73020 Auckland Dear Simon, 1. Cost of Capital: Auckland International Airport Ltd s Disclosure Financial
More informationWeighted Average Cost of Capital (WACC) Consultation Paper ( )
Weighted Average Cost of Capital (WACC) Consultation Paper Periodic review of input values for TSO/MO and DSO (2018-2022) DISCLAIMER This Consultation Paper has been prepared by ERO in order to inform
More informationCorporate Finance. Dr Cesario MATEUS Session
Corporate Finance Dr Cesario MATEUS cesariomateus@gmail.com www.cesariomateus.com Session 4 26.03.2014 The Capital Structure Decision 2 Maximizing Firm value vs. Maximizing Shareholder Interests If the
More informationEskom 2018/19 Revenue Application
Eskom 2018/19 Revenue Application Nersa Public Hearings 30 October 2017 Where we are coming from This revenue application is being made for the year 2018/19, after the Energy Regulator maintained its revenue
More informationUpdate on Market Discount Rates As at 30 June 2018 NOW YOU KNOW HOW TO ASSESS YOUR DISCOUNT RATES RELIABLY
Update on Market Discount Rates As at 30 June 2018 NOW YOU KNOW HOW TO ASSESS YOUR DISCOUNT RATES RELIABLY 1 1. Introduction As impairment testing and asset values continue to be one of the key focus areas
More informationMr. Rajesh Kumar Sethi Chair, CDM Executive Board UNFCCC Secretariat 9 th December 2008
Mr. Rajesh Kumar Sethi Chair, CDM Executive Board UNFCCC Secretariat CDMinfo@unfccc.int 9 th December 2008 Dear Mr. Rajesh Kumar Sethi Re: Initial response to the request for review of the request for
More informationThe South African Grid Code. Transmission Tariff Code. Version 9.0
The South African Grid Code Transmission Tariff Code Version 9.0 This document is approved by the National Energy Regulator of South Africa (NERSA) Issued by: RSA Grid Code Secretariat Contact: Mr. Bernard
More informationEskom Asset Restructuring. A Study into the Impact on the Long-Run Tariff Path
Eskom Asset Restructuring A Study into the Impact on the Long-Run Tariff Path May 2016 i Document Reference: Eskom Asset Restructuring A Study into the Impact on the Long-Run Electricity Tariff Path Date:
More informationBUSA presentation to NERSA on Eskom s RCA Application Multi Year Price Determination (MYPD3) Year 1 (2013/2014) 5 February 2016
BUSA presentation to NERSA on Eskom s RCA Application Multi Year Price Determination (MYPD3) Year 1 (2013/2014) 5 February 2016 Martin Kingston Chair: BUSA Standing Committee on Economic & Trade Policy
More informationEskom Revenue Application. Multi-Year Price Determination (MYPD 4) FY2019/ /22
Eskom Revenue Application Multi-Year Price Determination (MYPD 4) FY2019/20-2021/22 September 2018 Content Content Preface... 7 Executive Summary... 10 1.1 Key elements of allowed revenue for the 2019/20-2021/22
More informationMYPD3 Application January 2013
MYPD3 Application 2014-2018 January 2013 Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer
More informationRegulatory Manual for the Tariff Year 2014/15
Regulatory Manual for the Tariff Year 2014/15 Page 1 of 17 Contents Page 1. Abbreviations 3 2. Introduction 4 3. The Regulator s Mandate 5 4. Special note on Compliance with the Directives, Regulations
More informationSOLUTION. [?]Adoption by all stakeholders of a vision document for the ESI
18 June 2014 Ms Trudi Mcloughlin, BUSA By email Dear Ms Mcloughlin ENERGY SECURITY WORKSHOP 5 JUNE 2014 Please find below our response to your recent survey request. KEY CHALLENGES IN THE POWER / ELECTRICITY
More informationGuidelines for Monitoring and Approving Piped-Gas Transmission and Storage Tariffs in South Africa
Guidelines for Monitoring and Approving Piped-Gas Transmission and Storage Tariffs in South Africa Final March 2017 These Tariff Guidelines replace the 2009 version CONTENTS GLOSSARY... III ABBREVIATIONS...
More informationEskom 2018/19 Revenue Application
Eskom 2018/19 Revenue Application Nersa Public Hearings Bloemfontein 15 November 2017 Where we are coming from This revenue application is being made for the year 2018/19, after the Energy Regulator maintained
More informationTRANSNET SOC LIMITED PETROLEUM PIPELINES SYSTEM 2014/15 TARIFF DECISION
TRANSNET SOC LIMITED PETROLEUM PIPELINES SYSTEM 2014/15 TARIFF DECISION 13 March 2014 1 Table of Contents Page Table of Contents... 2 List of Tables... 3 List of Figures... 4 Abbreviations and Acronyms...
More informationCOMPANIES INTERPRETATION OF FINANCIAL STATEMENTS 13 MARCH 2014
COMPANIES INTERPRETATION OF FINANCIAL STATEMENTS 13 MARCH 2014 In this lesson we: Introduction Lesson Description Look at analysing financial statements and its purpose Consider users of financial statements
More informationTariff Application. TOTAL South Africa (Proprietary) Limited
TOTAL South Africa (Proprietary) Limited Tariff Application Alrode, Bethlehem, East London, Island View Terminal, Nelspruit, Ohrigstad, Polokwane, Waltloo Sannieshof & Pietermaritzburg 213 Address: PO
More informationCOMPANY OVERVIEW ABOUT PEC METERING. Background
COMPANY OVERVIEW ABOUT PEC METERING Background PEC Metering (Pty) Ltd is a private professional company established in 1994, specialising in utility management services and energy management with operations
More informationFINANCIAL ANALYSIS. 3. Assumptions. The following assumptions were used in carrying out the financial analysis:
Java Bali 500-Kilovolt Power Transmission Crossing Project (RRP INO 42362) FINANCIAL ANALYSIS 1. General Methodology. Financial analysis of the project has been undertaken in accordance with Asian Development
More informationPort Tariff Methodology. For Tariff Years 2018/ /21 MARCH 2017
Port Tariff Methodology For Tariff Years 2018/19 2020/21 MARCH 2017 Contents Page Methodology review context... 3 Introduction... 3 Background: The Regulator s Mandate... 4 The Multi-Year Methodology in
More informationEmbedding Financial Viability and Sustainability
Embedding Financial Viability and Sustainability September 2011 The purpose of this paper is to review the RIC s approach utilized for the first price control period to assessing financeability and to
More informationDCF-Methods Consistency of Valuation Results
Business Valuation DCF-Methods Consistency of Valuation Results WP/StB MMag. Alexander Enzinger, CVA www.rabelpartner.at January 2018 Contents Overview of DCF-Methods Consistency of valuation results Example
More informationModule 5: Special Financing and Investment Decisions
Module 5: Special Financing and Investment Decisions Reading 5.1: Introduction to Project Financing Some projects are so large that it may be best to finance them as they are standalone operations. Projects
More informationAFM 371 Practice Problem Set #2 Winter Suggested Solutions
AFM 371 Practice Problem Set #2 Winter 2008 Suggested Solutions 1. Text Problems: 16.2 (a) The debt-equity ratio is the market value of debt divided by the market value of equity. In this case we have
More informationLESOTHO ELECTRICITY AUTHORITY. Regulatory Accounting Guidelines
LESOTHO ELECTRICITY AUTHORITY Regulatory Accounting Guidelines Table of Contents REGULATORY ACCOUNTING GUIDELINES 1. Abbreviations... 3 2. Definitions... 4 3. Introduction and Purpose... 6 4. Legal Basis
More informationDraft Gas Rate of Return Guidelines
Draft Gas Rate of Return Guidelines Stakeholder Forum 3 September 2018 Agenda 01 Introduction and progress 02 High level overview of Draft Guidelines Matters that remain unchanged 03 High level overview
More informationCHAPTER 14. Capital Structure in a Perfect Market. Chapter Synopsis
CHAPTR 14 Capital Structure in a Perfect Market Chapter Synopsis 14.1 quity Versus Debt Financing A firm s capital structure refers to the debt, equity, and other securities used to finance its fixed assets.
More informationCHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS
CHAPTER 15 B- 1 CHAPTER 15 CAPITAL STRUCTURE: BASIC CONCEPTS Answers to Concepts Review and Critical Thinking Questions 1. Assumptions of the Modigliani-Miller theory in a world without taxes: 1) Individuals
More informationEskom 2018/19 Revenue Application
Eskom 2018/19 Revenue Application Nersa Public Hearings Klerksdorp 13 November 2017 Where we are coming from This revenue application is being made for the year 2018/19, after the Energy Regulator maintained
More informationDIRECT INFRASTRUCTURE VALUATIONS AND BOND RATE INCREASES:
insightpaper DIRECT INFRASTRUCTURE VALUATIONS AND BOND RATE INCREASES: it s not what you expect April 2017 AMP CAPITAL INFRASTRUCTURE 1 Key points Future bond rate increases are likely to be moderate.
More informationPort of Melbourne tariff compliance statement
2017-18 Port of Melbourne tariff compliance statement Interim commentary 9 November 2017 An appropriate citation for this paper is: Essential Services Commission 2017, 2017-18 Port of Melbourne tariff
More informationElectricity (Development of Small Power Projects) GN. No. 77 (contd.) THE ELECTRICITY ACT (CAP.131) RULES. (Made under sections 18(5), 45 and 46))
GOVERNMENT NOTICE NO. 77 published on 02/03/2018 THE ELECTRICITY ACT (CAP.131) RULES (Made under sections 18(5), 45 and 46)) THE ELECTRICITY (DEVELOPMENT OF SMALL POWER PROJECTS) RULES, 2018 1. Citation
More informationDemystifying Tariff Setting The tariff conundrum Lower rates now, blackouts later?
Demystifying Tariff Setting The tariff conundrum Lower rates now, blackouts later? Does South Africa need a cost reflective tariff? For years, low electricity costs have been a driver behind South Africa
More informationResidential tariff increases and restructuring for MYPD3 explained. Brochure
Residential tariff increases and restructuring for MYPD3 explained Brochure November 2012 Residential brochure for MYPD3 changes Page 1 PART 1: ESKOM REVENUE REQUIREMENT Introduction Eskom applies for
More informationBusiness Valuation Methodology Survey 2017
Business Valuation Methodology Survey 2017 September 2017 Privileged For limited circulation Contents Foreword 03 Executive summary 04 Detailed survey results 05 The survey report focuses on business valuation
More informationFIN 350 Business Finance Homework 7 Fall 2014 Solutions
FIN 350 Business Finance Homework 7 Fall 2014 Solutions 1. Home Builder Supply, a retailer in the home improvement industry, currently operates seven retail outlets in Georgia and South Carolina. Management
More informationUsing Microsoft Corporation to Demonstrate the Optimal Capital Structure Trade-off Theory
JOURNAL OF ECONOMICS AND FINANCE EDUCATION Volume 9 Number 2 Winter 2010 29 Using Microsoft Corporation to Demonstrate the Optimal Capital Structure Trade-off Theory John C. Gardner, Carl B. McGowan Jr.,
More informationFinancial Aspects. March 3, ECO 4934: Public Utilities Economics: International Infrastructure
Financial Aspects March 3, 2008 ECO 4934: Public Utilities Economics: International Infrastructure The importance of Financial data Regulators gather and study financial data to partially overcome the
More informationThe Revenue Requirement
The Revenue Requirement Csaba Kovács Hungarian Energy Office NARUC Training on Tariff Development and Utility Regulation Baku, 07-11/05/2007 1 Content of the presentation Main principles of tariff regulation
More informationAppendices Appendix 1. STOXX50 Moving Average Monthly Returns, Source: Bloomberg data, November 2016.
Appendices Appendix 1. STOXX50 Moving Average Monthly Returns, 1987-2016 Source: Bloomberg data, November 2016. 6% STOXX50 Moving Average Monthly Returns 4% 2% 0% 01/12/1987 01/12/1992 01/12/1997 01/12/2002
More informationValuing Companies by Cash Flow Discounting: Ten Methods and Nine Theories. Pablo Fernández
Pablo Fernández PricewaterhouseCoopers Professor of Corporate Finance Camino del Cerro del Aguila 3. 28023 Madrid, Spain Telephone 34-91-357 08 09. e-mail: fernandezpa@iese.edu ABSTRACT This paper is a
More informationSAWEA submission to the public hearing relating to the NERSA review of the REFIT tariffs. By: Johan van den Berg, CEO.
SAWEA submission to the public hearing relating to the NERSA review of the REFIT tariffs By: Johan van den Berg, CEO Date: May 2011 Overview 1. Who we are and our vision 2. Some history of our engagement
More informationFEEDBACK TUTORIAL LETTER
FEEDBACK TUTORIAL LETTER 2 nd SEMESTER 2017 ASSIGNMENT 1 MANAGERIAL FINANCE 4B MAF412S 1 Assignment 1 QUESTION 1 COMPANY A & B a) Co. A Co. B Net Operating Income 5,000,000 5,000,000 Less: interest -1,500,000
More informationFINALTERM EXAMINATION Spring 2009 MGT201- Financial Management (Session - 2) Question No: 1 ( Marks: 1 ) - Please choose one What is the long-run objective of financial management? Maximize earnings per
More informationEnergy and Climate Change Programme P O Box 106 Office Tel: (+27) (0) Fax:
SAFCEI is a company not for profit Reg No 2006/014388/08 NPO 053498 PBO 930024255 Faith communities committed to cherishing living earth. www.safcei.org.za Energy and Climate Change Programme P O Box 106
More informationSigns of the times Valuation Methodology Survey
PricewaterhouseCoopers Corporate Finance Signs of the times Valuation Methodology Survey 2009/2010 5th Edition PwC Table of contents 01 Introduction 1 02 Current valuation issues 5 03 Valuation approaches
More informationDetermining the cost of capital for the UCLL and UBA price reviews
ISBN no. 978-1-869453-57-2 Project no. 13.01/14544 Public version Determining the cost of capital for the UCLL and UBA price reviews Technical consultation paper Date: 7 March 2014 2 CONTENTS LIST OF DEFINED
More informationOptimal Capital Structure Analysis for Energy Companies Listed in Indonesia Stock Exchange
Optimal Capital Structure Analysis for Energy Companies Listed in Indonesia Stock Exchange Nadhila Qamarani* The main goal of managerial finance is to maximize shareholders wealth which is highly affected
More information18 August 2017 The National Treasury 240 Madiba Street PRETORIA 0001
18 August 2017 The National Treasury 240 Madiba Street PRETORIA 0001 The South African Revenue Service Lehae La SARS, 299 Bronkhorst Street PRETORIA 0181 BY EMAIL: Nombasa Langeni (Nombasa.Langeni@treasury.gov.za)
More informationChapter 15. Topics in Chapter. Capital Structure Decisions
Chapter 15 Capital Structure Decisions 1 Topics in Chapter Overview and preview of capital structure effects Business versus financial risk The impact of debt on returns Capital structure theory, evidence,
More informationCapital Structure (General)
Capital Structure (General) Question 1 What is the debt:equity ratio for the following UK company? Assets Fixed assets 120 Current assets Stock 50 Debtors 80 250 Liabilities Creditors due in less than
More informationRevenue Requirements, Rate Base and Cost of Capital Analysis and Process By the Office of Accounting & Finance New York State Department of Public
Revenue Requirements, Rate Base and Cost of Capital Analysis and Process By the Office of Accounting & Finance New York State Department of Public Service November 2011 Presentation Outline Revenue Requirements
More informationCapital Structure Decisions
GSU, Department of Finance, AFM - Capital Structure / page 1 - Corporate Finance Capital Structure Decisions - Relevant textbook pages - none - Relevant eoc-problems - none - Other relevant material -
More informationESKOM RCA Applications 2015/ / /18
ESKOM RCA Applications 2015/16 2016/17 2017/18 NERSA 16 April 2018 Nelson Mandela Bay Business Chamber Inputs and Recommendations Overview The Nelson Mandela Bay Business Chamber The Applications What
More informationFinance 402: Problem Set 6 Solutions
Finance 402: Problem Set 6 Solutions Note: Where appropriate, the final answer for each problem is given in bold italics for those not interested in the discussion of the solution. 1. The CAPM E(r i )
More informationPeter Wright. Renewable Energy Projects in Africa Comparing Procurement Models for Renewable Generation Capacity. Simmons & Simmons March 2015
Renewable Energy Projects in Africa Comparing Procurement Models for Renewable Generation Capacity Peter Wright Simmons & Simmons March 2015 Meeting the cost of Green Energy When renewables first emerged
More informationLet s Build a Capital Structure
FIN 614 Capital tructure Design Principles Professor Robert.H. Hauswald Kogod chool of usiness, AU Let s uild a Capital tructure Determinants of firms debt-equity mix operations funded with a combination
More informationRETURN AND RISK: The Capital Asset Pricing Model
RETURN AND RISK: The Capital Asset Pricing Model (BASED ON RWJJ CHAPTER 11) Return and Risk: The Capital Asset Pricing Model (CAPM) Know how to calculate expected returns Understand covariance, correlation,
More informationQUESTION ONE Briefly explain three practical uses of the capital asset pricing model. ( 6 marks) Beta equity coefficient
QUESTIONS QUESTION ONE Briefly explain three practical uses of the capital asset pricing model. ( 6 marks) (b) Mr. P K is currently holding a portfolio consisting of shares of four companies quoted on
More informationfinexpert capital market report
finexpert capital market report 12 2017 Volume 7 1 Preface & People 3 Current Research 15 Cost of Capital: Overview 20 CAPM: Beta Factor Development 42 Yield Curve: Svensson (1994) Detailed Table of Contents
More informationSEQ Retail Water Long Term Regulatory Framework weighted average cost of
APPENDIX B Final Report SEQ Retail Water Long Term Regulatory Framework weighted average cost of capital (WACC) September 2014 We wish to acknowledge the contribution of the following staff to this report:
More informationWeighted Average Cost of Capital
Weighted Average Cost of Capital Establishing a fair return under U.S. law Travis Kavulla President, NARUC Commissioner, State of Montana ERRA Tariff/Pricing Committee Meeting October 19, 2016, Bratislava,
More informationANNEXURE C FOR 2018 BUDGET: INTERNATIONAL TAX
24 November 2017 The National Treasury 240 Madiba Street PRETORIA 0001 The South African Revenue Service Lehae La SARS, 299 Bronkhorst Street PRETORIA 0181 BY EMAIL: Nombasa Langeni (Nombasa.Langeni@treasury.gov.za)
More informationDecomposition (16-3)
Decomposition (16-3) Decompose shareholders required return on equity into its economic and financial risk premium components. Solution Shareholders required return on equity is the sum of tree components
More information