Core References

• Restructuring and Managing the Enterprise in Transition Washington, D.C.: The World Bank, 1998, Chapters 2-3. Crum, Roy L., and Itzhak Goldberg

  Focuses on transitioning economies. Describes asset valuation for the balance sheet and techniques for adjusting for inflation.

• Resetting Price Controls for Privatized Utilities: A Manual for Regulators Washington, D.C.: World Bank, 1999, Chapter 7. Green, Richard, and Martin Rodriguez Pardina

  Considers regulatory treatment of investment, depreciation, and the asset base. Examines whether to value assets at historical cost or replacement cost. Also considers valuation at time of privatization.

• Privatisation of Utilities and the Asset Value Problem CMPO, University of Bristol, 2001. Grout, Paul A., Andrew Jenkins, and Ania Zalweska

  Examines the effects of the market value approach to asset valuation. Finds that this approach magnifies and entrenches errors. Recommends the regulatory agency estimate its own value of the company.

• Replacement Cost Asset Valuation and Regulation of Energy Infrastructure Tariffs ABACUS 39(1): 1-41, 2003. Johnstone, D. J.

  Examines the consequences of valuing assets based on an optimized replacement cost methodology. Argues that the approach values sunk infrastructure as if it were new infrastructure.

• The Economics of Regulation: Principles and Institutions Cambridge, MA: MIT Press, 1988, Reissue Edition, vol. I, Chapters 2 and 4. Kahn, Alfred

  Describes how to determine the rate base. Provides analysis of U.S. legal issues in rate base valuation. Considers fair value, current value, and original cost. Describes the problems of each for the regulatory process. Examines choices of replacement versus original cost in the context of efficient pricing.

Sectoral References

TELECOMMUNICATIONS

• Current Cost Accounting Methodology for Telstra’s Subsequent Reports under the Accounting Separation Regime: Framework Document January 2004. Australian Competition and Consumer Commission

  Describes regulator’s requirements for accounting separations for dominant telecommunications operator under a current cost accounting scheme. Outlines government’s requirements and regulator’s objectives. Describes anti-competitive conduct that is of concern. Considers issues of asset valuation and capital maintenance. Summarizes international developments.

TRANSPORTATION

• A Contrasting Approach to Road Sector Reforms: The Case Study of Uganda Experience Sub-Saharan Africa Transport Program Discussion Paper, number 1, World Bank, Washington, D.C., 2003. Kumar, Ajay

  Documents Uganda's experience some aspects of design and implementation of road management and financing reforms. Key features of the reform process were: (a) development of an analytical basis to review different road financing and management options; (b) commitment and ownership of the reform program; (c) perception of transport as one of the important sectors of the economy; and (d) development of a sector investment policy and plan.

WATER

• Review of Asset Values, Costs and Cost Allocation of Western Australian Urban Water and Wastewater Service Providers: General Principles and Methodology Melbourne, Australia; The Allen Consulting Group, 2005. Allen Consulting Group

  Examines the appropriate regulatory asset value, forecasting operating expenditure, evaluation of capital expenditures, cost allocation methodologies, and estimating short-run marginal costs and long-run marginal costs of water and sewerage service provision.

• The Capital Structure of Water Companies October 11, 2002. OXERA

  Examines appropriate capital structure for water companies in the U.K. Considers effects of capital structure on the cost of capital, whether an operator should be expected to choose an optimal capital structure from the regulator’s perspective, and appropriate regulatory responses to capital structure issues.

• Tariff Setting Guidelines: A Reduced Discretion Approach for Regulators of Water and Sanitation Services Public-Private Infrastructure Advisory Facility (PPIAF), Working Paper no. 8, 2009. Shugart, Chris and Ian Alexander

  Provides specific guidelines for tariff setting for water and sanitation services, in addition to describing basic principles. Addresses price reviews, allowed revenue, appropriate amounts for operating expenses, valuing regulatory assets, foreign exchange adjustments, cost of capital, capital maintenance charges, capital expenditures, and extraordinary reviews.

Other References

• Valuation: Measuring and Managing the Value of Companies Wiley Publishers, 2000, Chapter 1. Copeland, Thomas E., Tim Koller, Jack Murrin

  Describes why valuing companies is important for all stakeholders and how shareholders move capital among enterprises based on return on investment.

• Regulatory Opportunism and Asset Valuation: Evidence from the US Supreme Court and UK Regulation CMPO, University of Bristol, 2001. Grout, Paul A. and Andrew Jenkins

  Compares the evolution of the treatment of the asset base in the U.S. and the U.K. Finds that operators and regulators both behave opportunistically with respect to asset valuation policies, namely that policy preferences are influenced by how the policies affect prices.

Key Words

Rate base, Assets, Original cost, Replacement cost, Fair value, Current cost, Regulatory Assets