Price controls set a ceiling on the revenue that can be recovered from licensed activities. The price controls, for the ..
Price controls set a ceiling on the revenue that can be recovered from licensed activities. The price controls, for the most part, are of a "CPI-X" type, which define maximum allowed revenue (MAR) that each company can recover in respect of its licensed activities during each year of the control period. Currently, there are separate controls for the water and electricity businesses of the three network companies (TRANSCO, ADDC and AADC) and ADWEC.
"CPI-X" regulation is increasingly being adopted worldwide and is seen as delivering the best long-run combination of low prices and high quality of services to customers. CPI stands for Consumer Price Index used to adjust the allowed revenue for inflation from one year to another. X is a factor used to establish an appropriate profile of revenue over years.
To ensure the economy and efficiency of the sector, the Bureau's responsibility is reflected in the operating licences of the sector companies, which are subject to various requirements in respect of their economic purchasing and efficient operation.
For example, ADWEC in contracting for the purchase of capacity for water desalination or capacity for electricity generation, new or additional production capacity and fuel, shall purchase or otherwise acquire such capacity (or as the case may be, fuel and 'ancillary services') by adopting the most economic purchase method.
ADWEC's contractual relationship with the new generation and desalination companies created under the Law takes the form of a number of power and water purchase agreements (PWPA). The PWPAs for new plants are twenty-year contracts and are competitively procured. For existing plants, payment terms in the PWPA are benchmarked against the costs of a new plant to ensure that they are efficient.
Similarly, the monopoly electricity and water transmission company (TRANSCO) which is also responsible for the economic despatch of plants and the settlement of payments, is subject to a licence obligation requiring the despatch of plants and procurement of 'ancillary services' to be on an economic basis.
Similar is the case with ADSSC, whose procurement of wastewater treatment services from independent sewage treatment plant under the sewage treatment agreements (STAs) is subject to satisfaction of its economic purchasing obligations.
The PWPA and fuel costs for ADWEC and STA costs for ADSSC are treated on a pass-through basis under their price controls, subject to fulfilment of their economic purchasing obligations.