The implementation of this rate regulation criteria is highly dependent on detailed, high
quality information about Utility assets value and depreciation, amount of investments,
maintenance costs and operational costs, at least. That “technical” information, together
with information about level of energy sales, number of customers and other costs, are
the basis for the accounting practices that support the rate evaluation.
The requirement to generate that “technical” information and control the business
processes that deal with that data was the key driver for GIT application development in
the late 80’s and early 90’s, as will be showed forward in this paper.
The rate regulation criteria based on cost-of-service is known to favor the overinvestment
and the inefficiency of the system overall, named as the Averch-Johnson
effect (Capeletto, 2001; Averch & Johnson, 1963). To counter that were developed
models based on price caps fixed for a period of time, and adjusted in between by a factor
that includes the inflation minus a productivity gain correction, mainly adopted in
Europe.
A variation of this approach is called the
Performance Based Regulation, which has been
in discussion by various states in the US. In this case, the capacity of the Utility to freely
practice rates is conditioned to its ability to met regulator established performance goals.
These goals covers various areas of the Utility activity and its customer relationship, but
ones that are usually included and affects GIT applications directly are the service
availability and continuity measurements, in the form of SAIDI and SAIFI numbers (or
equivalents). This regulatory control over service quality aspects is relatively new, only
recently being considered by GIT technology providers as an industry driver. As a matter
of fact, until January 1998 the IEEE standards for these measurements (IEEE P1366/D18,
1998) were yet in a draft format.
Brazilian Case
The history of the government intervention in the Brazilian market is fairly different from
the US one. Even if the Utility industry has its beginning through the creation of private
owned companies (British and Canadian investments mainly), the major part of the
electric utilities where owned by state governments during the 70’s and 80’s. These
companies were vertical organizations covering Generation, Transmission and
Distribution in the whole state geographic area. This environment, associated with the
absurdly high inflation rates that were observed in the country during this period (over
100% per year), caused some distortions on the rate regulation, as follows:
-
The electricity rate, as other public service rates, were widely used as tools to control
inflation, since the government as the unique controller was able to postpone or
negate rises needed to face cost elevation.
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The potential cash flow problems arisen them were covered by capital injections
coming from the government treasure.
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Also, cross subsidies between the business in the vertical organization, and across
markets (commercial, industrial and residential) were fairly common, hiding the real
cost structure of each step of the supply chain.
