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Price Control

The Authority has implemented price controls that limit the revenue Companies established at statutory monopolies can recover from companies each year. The following sections describe in outline terms the structure of these price controls. The Authority is reviewing the present price controls and expects to implements new control from the year 2009.

MIS- Formula Explanation ( Model 2005 – 2007) for PWP

Oman Power and Water Procurement Company Price Control

The principal duties of the PWP are to bulk supply electricity to licensed suppliers, bulk supply desalinated water to Water Departments, and fulfil the government counterparty responsibilities of the Salalah Concession Agreement. The PWP maintains separate accounts for its power and water procurement functions (Procurement Business) and Salalah functions (Salalah Business). Figure 1 describes the price controls applicable to each of these businesses.

The PWP recovers its Procurement Business costs through approved electricity and water bulk supply tariffs (see below), subject to a revenue limit determined by the price control formula shown in Figure 2.

The Maximum Allowed Revenue of this control allows the PWP a margin of one quarter of one per cent of the value of COPCt to compensate for procurement related risks.

The PWP provided the Authority with estimates of the component elements of the Procurement Business price control formula. These estimates were the basis of the initial 2005 price control and the approved 2005 electricity and water bulk supply tariffs. The Authority approved the basis on which the cogeneration costs of the Barka and Ghubrah production facilities, and the PWPt Notified Value, are apportioned to electricity and water.

MIS- Formula Explanation ( Model 2005 – 2007 and 2008 extensions) for OETC

Transmission and Dispatch Price Control

The OETC price control covers the period 1 May 2005 to 31 December 2007 and an extension to December 2008, details of the price control formula are presented in Figure 3.

Setting the OETC price control required forecasts of transmission system maximum demand and units transmitted in each year of the price control period. The present value of the expected costs (capital costs, operating costs, and capital employed) of meeting forecast demand was derived using a real pre-tax weighted average cost of capital of 7.55%. The Authority then determined values for the at, bt and ct revenue drivers that returned a present value of allowed revenue equal to the present value of costs.

MIS- Formula Explanation ( Model 2005 – 2007 and 2008 extension) for Distribution Companies

Distribution and Supply Price Control

The Muscat, Majan and Mazoon Discos price controls cover the period 1 May 2005 to 31 December 2007, the distribution and supply price control formula is shown in Figure 4.

The Maximum Allowed Revenue formula was described when presenting the MIS subsidy calculation methodology.

The Maximum Allowed Network and Customer Service Revenue was determined by discounting expected distribution and supply business costs (capital costs, operating costs, and capital employed) in each year of the price control period using a real pre-tax weighted average cost of capital of 7.55%. The Authority then determined values for the at, bt and ct revenue drivers that returned a present value of allowed revenue equal to the present value of costs.

Basic Formulae: Regulated Revenue

The Licensee shall, in setting its charges for the Generation, Transmission, Distribution System Services, the Supply of electricity to Premises and the Bulk Supply of Desalinated Water, and in claiming its subsidy entitlement from the Government, use its best endeavours to secure that in any Relevant Year the Actual Regulated Revenue (ARR) shall not exceed the Maximum Allowed Revenue (MAR) calculated according to the following formula:

MARt = Gt + Dt + Tt + MADSRt + LFt - Kt

Where:

MARt means the Maximum Allowed Revenue in Relevant Year t;

Gt means the allowed revenue (measured on an accruals basis) in respect of electricity Generation in Relevant Year t calculated according to the formulae in paragraph 2 below;

Dt means the allowed revenue (measured on an accruals basis) in respect of bulk supplies of Desalinated Water in Relevant Year t calculated according to the formulae in paragraph 3 below;

Tt means the allowed revenue (measured on an accruals basis) in respect of RAEC Systems and International Interconnections of 132 kV or above, in Relevant Year t calculated according to the formulae in paragraph 4 below;

MADSRt means the Maximum Allowed Distribution And Supply Revenue in Relevant Year t calculated according to the formulae in paragraph 5 below;

LFt means the Licence fee payable pursuant to Condition 8 in Relevant Year t; and

Kt is the correction factor in Relevant Year t calculated in accordance with the following formula: