Tariff revision process: under a COS approach, the basic procedural methodology typically involves the utility and the regulator formally interacting, in accordance with defined protocols and schedules, to specify prices. In these proceedings, the utility’s primary responsibility is to provide data and supporting materials, in formats to be specified by the regulator. The regulator’s responsibilities are to: (i) define the format for reporting information; (ii) review the quality and accuracy of the data and, as necessary, request additional information; and (iii) compute tariffs in accordance with defined and documented methods. In addition, interested stakeholders (e.g., large customers, representatives of residential customers, economists, etc.) should be provided an opportunity to present testimony during the proceedings.
Treatment of future capital expenditures: a key issue faced in certain regions, particularly in growing economies, is how to support continuing investment in energy infrastructure. In particular, the issue centers on how to provide the relevant incentives for ensuring sufficient investments today and in the future to prevent shortages in service provision, while discouraging unnecessary and inefficient spending. This conflict is often resolved by the utility detailing their long-term capital expenditure plans, which are then subject to review by the regulator (and potentially, at the regulator’s discretion, independent experts). These reviews typically occur ex-ante, with approved capital expenditures incorporated in rates for the forthcoming regulatory period. There is also an ex-post review of performance related to capital expenditures from the previous period, with compensation to customers and a reduction in the total revenue requirement if capital expenditures for the previous period is not spent. Furthermore, to ensure competition in investment procurement processes in monopoly-related areas, such as transmission, this mechanism for approval of future capital expenditures is often combined with a request for proposal (“RFP”) process for new builds.