Regional Workshop on Uniform System Regional Workshop on Uniform System of Accounts and Regulatory Reportingof Accounts and Regulatory Reporting

Olena Bondarenko, NERC of UkraineOlena Bondarenko, NERC of Ukraine

19 May 2008

2

1. Asset evaluation1. Asset evaluation

• For the majority of Ukrainian distribution companies assets are apprised by their remaining book value

• For 5 companies privatized in 2001, their purchase value is used as a rate base

3

2. Treatment of O&M costs where the activity is 2. Treatment of O&M costs where the activity is provided by a person or company outside the utilityprovided by a person or company outside the utility

• Irrelevant for the Ukrainian electric power sector good– Applicable Law of Ukraine doesn’t stipulate that the regulated

activity can be provided by a person or company outside the utility

4

3. Cost Allocation3. Cost Allocation

• In conformance with Rules and Conditions regulating electricity distribution and supply activities, licensee should have unbundled book accounting and prepare financial reports separately for each type of activities (regulated and non-regulated)

• Licensee has to allocate costs between regulated and non-regulated activities reasonably (according to its accounting policy) and provide an explanations of cost allocation, supported by necessary documentation, in a case of NERC ’s inquiry

5

4. Cost allowance4. Cost allowance

• In accordance with the Law of Ukraine “On Natural Monopolies” and “On Electric Power Sector” : – Costs, which accordingly to the taxation laws of Ukraine are

considered to be total costs of production and turnover, are taken into account for the tariff (price) setting

– All the other costs are disallowed

6

5. Treatment of the cost of new construction 5. Treatment of the cost of new construction before the plant is put into servicebefore the plant is put into service

• The book value of incompleted construction consists of payments charged for its acquisition or building

• Incompleted construction are not considered to be the capital assets as they are not used in the regulated activity, by that time the plant is put into service

• Hence, the charges for acquisition or building of such incompleted constructions are not liable to depreciation or recovery.

7

6. Treatment of supply costs6. Treatment of supply costs• Retail tariffs are fixed by suppliers on their own, adhering

to conditions and rules regulating electricity supply activities, based on the wholesale market price and transmission and supply charges approved by the NERC: – Transmission and supply tariffs are fixed on annual basis– The forecasted wholesale market price is fixed by the NERC

monthly. – The actual wholesale market price is fixed by the wholesale

supplier on the hourly basis, depending on daily consumption and power bids

– The NERC continuously monitors and analyses the wholesale market price balancing it within the forecasted levels