Rate Rebasing Concepts for Public Consultation, MWSS

7/28/2019 Rate Rebasing Concepts for Public Consultation, MWSS

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THE RATE REBASING

FRAMEWORK

MWSS REGULATORY OFFICE


2/13

Presentation Outline

Rate Setting vs Service Levels

Rate Rebasing Guidelines

What the Concession Agreement Provides


3/13

Concession Agreement Framework

Economic Regulation

TARIFF ASPECTSTariffs

Revenue Requirements

Financial Monitoring

TECHNICAL ASPECTSService Quality

Operational Performance

Customer Services

Source: Stone & Webber Consultants, Inc., Severn Trent Water International Ltd., IDP Consult, Inc.

2003. Introduction to Economic Regulation of Water Supply and Wastewater Utilities


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Concession Agreement Framework

Asset Management

Obligations

operate,maintain and renew

Meet Service Obligations

provision of water supply &

sewerage services

Cash Flows prudently and efficiency

incurred

Historical and Future ; Receipts

and Expenditures


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Article 9.4 General Rate Setting Policy (Rate Rebasing)

. . . the rates for water and sewerage services shall be

set at a level that will permit the Concessionaire to recover

over the 25-year term of the Concession operating, capitalmaintenance and investment expenditures efficiently and

prudently incurred, Philippine business taxes and payments

corresponding to debt service on the MWSS Loans and

Concessionaire Loans incurred to finance such expenditures,and to earn a rate of return on these expenditures for the

remaining term of the Concession.

WHAT THE CA PROVIDES ON RATE REBASING

o


6/13

THE RATE REBASING FORMULA

+

+TARIFF = F. RECEIPTS FROM RATES

F. BILLED VOLUME


7/13

RATE REBASING FORMULA

Opening CashPosition

(OCP)

Net of HistoricalReceipts andExpenditures

Stated in CurrentPrices

Negative amount

Net FutureExpenditures

Expenditures netof other Receipts,

and ExpirationPayment

Stated in CurrentPrices

Efficiently andprudently incurred

Cost ofMoney

Project Return(not Equity)

REAL Rate ofReturn (insulated

from inflation)

RepresentsWeighted Average

Cost of Capitalafter Taxes


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TARIFF

TechnicalAspects

RATE REBASING PROCESS

Review Actual vs.Committed Performance on

Service Obligations andOperational Efficiency

Reinforce, Modify orEnhance Service Obligationsand Establish Performance

Targets

Historical Cash Flows orOpening Cash Position Future Cash Flows


9/13

THE RATE REBASING PROCESS

DemandProjections

Population growthConsumption patterns

Demand vs. supply for reasonableness ofprojections

OPEX

Check for reasonableness of projections

Check prudency and efficiency

Benchmark

CAPEX

Check for reasonableness of projection

Check prudency and efficiency

Benchmark

MWSS-CO review

ADR

Cost of Equity Cost of Debt

Gearing Ratio

Others

Check accuracy of estimates of Concession Fees

Check inclusion of other operating reciepts

Determine appropriate macro-economicassumptions (i.e. inflation, forex rates)

RECEIPTS

Check accuracy and completeness

OPEX

Audit for accuracy

Prudency and efficiency test; benchmark

determine intercompany costs for disallowances

Ring-fencing

CAPEX

Audit for accuracy

Prudency and efficiency test, benchmark

determine related party transactions fordisallowances

Ring-fencing

Rewards andpenalties

Service Obligations

KPIs, BEMsNRW, OPEX

Others

Review non-recurring costs such as retirement pay

Review accuracy of recorded concession feepayments


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RATES vs LEVELS OF SERVICE

T

AR

I

FF

L

EV

E

L

S

O

F

S

E

RV

I

CE

HOW??


11/13

LEVELS OF SERVICE

COVERAGE

AVAILABILITY

PRESSURE

QUALITY

RESPONSE TO CUSTOMER COMPLAINT/REQUEST

INFORMATION TO CUSTOMERS


12/13

OpeningCash Position

(OCP)

REFLECTS THE PAST ACTIVITIESOF THE CONCESSIONAIRES

THAT RESULTED IN THEPRESENT LEVELS OF SERVICE

INCLUDES PENALTIES FOR FAILURETO MEET SERVICE LEVEL TARGETS

Net FutureExpenditures

BASED ON TARGET LEVELS OFSERVICE

REFLECTS FUTURE ACTIVITIES OFTHE CONCESSIONAIRES TO MEET

THE SERVICE LEVEL TARGETS

Cost ofMoney

AFFECTS WILLINGNESS OF

CONCESSIONAIRES TO INVEST INF. EXPENDITURES

IN TURN, LEVELS OF F.

EXPENDITURES AFFECTS BILLEDVOLUME AND LEVELS OFSERVICE

Future BilledVolume

AFFECTED BY LEVELS OF F.EXPENDITURES

AFFECTS LEVELS OF SERVICE(I.E. COVERAGE, AVAILABILITY

AND PRESSURE)

RATES vs SERVICE LEVELS


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THANK YOU

Documents

Rate Rebasing Concepts for Public Consultation, MWSS