IEEE Power & Energy Magazine - May/June 2020 - 45
planned investment (with a cost of US$100) can be eliminated without affecting reliability (for instance, there may
be no way to exercise operational measures, such as demand
control during peak hours, at a very low cost, which will
be assumed to be negligible for simplicity). The question
is whether the regulatory framework will incentivize the
network owner to realize the saving or opt a different, inefficient result. Other data relevant to the problem include
the investor's 7% cost of capital, the 8% regulated rate of
return (used to calculate the company's revenues as the
remuneration of the RAB minus the asset depreciation, that
is, revenue t = RAB t -1 # rate of return - depreciation t), and
the assets' 20-year life span. The investment options are (see
Table 5) as follows:
✔✔ Option 1: Undertake the investment (albeit not needed) at the beginning of the control period (as planned),
which will be remunerated during the lifespan of the
asset (including the four-year control period).
✔✔ Option 2: Eliminate the investment and save $100.
Revenues will remain fixed as agreed during the control period (that is, assuming the initial investment of
$100) to incentivize efficiency. Beyond the control period, revenues will be canceled since the investment
was not undertaken.
table 5. Yearly revenues, costs, and profits of three investment options (in generic currency).
Year
Invest- Profit in
Invest-
Yearly
RAB
ment
Present
ment
Depreciation (Option 1) Revenue Cost
Value
Revenue Cost
Option 1
100
100
Option 2
Option 3
Profit in
Present
Value
Revenue
Invest-
ment
Cost
Profit in
Present
Value
-100
1
5
95
13
12.15
13
12.15
13
12.15
2
5
90
12.6
11.01
12.6
11.01
12.6
11.01
3
5
85
12.2
9.96
12.2
9.96
12.2
9.96
4
5
80
11.8
9
11.8
9
11.8
5
5
75
11.4
8.13
13 (as in
year 1)
9.27
6
5
70
11
7.33
12.6
8.4
7
5
65
10.6
6.6
12.2
7.6
8
5
60
10.2
5.94
11.8
6.87
9
5
55
9.8
5.33
11.4
6.2
10
5
50
9.4
4.78
11
5.59
11
5
45
9
4.28
10.6
5.04
12
5
40
8.6
3.82
10.2
4.53
13
5
35
8.2
3.4
9.8
4.07
14
5
30
7.8
3.02
9.4
3.65
15
5
25
7.4
2.68
9
3.26
16
5
20
7
2.37
8.6
2.91
17
5
15
6.6
2.09
8.2
2.6
18
5
10
6.2
1.83
7.8
2.31
19
5
5
5.8
1.6
7.4
2.05
20
5
5.4
1.4
7
1.81
21
6.6
1.59
22
6.2
1.4
23
5.8
1.22
24
5.4
1.06
Total
may/june 2020
6.72
42.12
100
-67.29
47.24
ieee power & energy magazine
45
IEEE Power & Energy Magazine - May/June 2020
Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2020
Contents
IEEE Power & Energy Magazine - May/June 2020 - Cover1
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