ENERGYWorkingNotes ENERGY AND MINING SECTOR BOARD NO.2 NOVEMBER 2004 The Regulatory Challenge of Asset Valuation: A Case Study from the Brazilian Electricity Distribution Sector Vivien Foster and Pedro Antmann INTRODUCTION Given the capital intensity of network utilities, the can be related to a competitive market, no specific remuneration of both historic and new investments procedure for asset valuation is necessarily correct. is a major determinant of consumer prices, typically Numerous conceptually consistent and properly accounting for around two thirds of total costs. In sustained methodologies for valuing assets are order to derive the annuity required to sustain available, and are widely used in differing infrastructure investments over time, the cost of circumstances by both the private and public sectors capital and depreciation rules are applied to the for a variety of reasons. Those methods routinely Regulatory Asset Base (RAB), a number which give widely diverging results when applied to any captures the value of all past investments in the specific regulated company. It is not unusual to find company. The RAB used to calculate return on discrepancies of 2:1--or even more--from capital and depreciation need not necessarily be alternative asset valuation methodologies. This the same, as different considerations may arise in evidently has a major impact on the resulting tariffs, measuring the capital stock used in each case. For and these high stakes--in their turn--create example, if historic investments were entirely incentives for the different parties to any tariff review subsidized by the tax-payer, while new investments to develop and justify opposing positions. are to be funded by the private sector, the government may choose to accept a discount on Methodological options the RAB when calculating a return on historic investments. However, even if this were to be the Ideally, the choice of asset valuation methodology case, the full value of the RAB should still be used should be established in the regulatory framework to calculate depreciation charges, ensuring that the at the time of privatization. Moreover, the chosen capital stock is maintained over time. method should be adhered to consistently thereafter, as even minor methodological changes may have Asset valuation often proves to be one of the most significant price impacts and would contribute difficult and controversial aspects of regulatory substantially to regulatory risk for the operator since price-setting. The reason is that, unless valuation uncertainty about returns would be introduced. Energy and Mining Sector Board · Infrastructure Network · The World Bank Group www.worldbank.org/energy Vivien Foster (vfoster@worldbank.org) is a Senior Economist in the Finance, Private Sector and Infrastructure Department of the Latin America and Caribbean Region of the World Bank in Washington DC. Pedro Antmann is Executive Director and Country Manager of Mercados Energeticos based in Brazil. The authors are grateful to PPIAF (www.ppiaf.org/ )for funding the research underlying this paper. They would also like to acknowledge the valuable peer review by Ian Alexander, Senior Economist, South Asia Infrastructure Department. 2 The Regulatory Challenge of Asset Valuation Indeed, it may often be preferable to stick with a not established at the beginning, this approach single, if somewhat imperfect methodology, than to cannot be used at future price reviews due to a be continuously adjusting and fine-tuning the fundamental problem of circularity. The reason is methodology over time. Unfortunately, in practice, that the asset value then becomes dependent on the the asset valuation methodology is not always future regulatory price path, which is in turn itself defined in the regulatory framework, leaving the dependent on the asset value. decision pending until the first regulatory price review. Replacement cost based approaches relate the Methods for determining the value of the underlying value of an asset to the cost of purchasing the asset RAB can be characterized under two main or the service potential embodied in the asset, approaches: those based on economic (or market) either at the original historic cost or adjusting this value, and those based on replacement cost. original cost to reflect subsequent price changes. Replacement cost approaches reflect the value of Economic value or market based approaches assets to the business. Given the long lived nature determine the value of an asset largely from its cash of utility assets, the measurement of replacement generating capacity. Economic value or market cost over time is complicated by the combined based approaches reflect the value of the business, effects of inflation, depreciation, and technological as determined by investors in financial markets. This change. There are number of options for measuring can be measured by the net present value of future the replacement cost of assets, which generally cash flows (net present value) or the cash generated present a trade-off between the simplicity of the by selling the asset (net realizable value). procedures involved and the accuracy of the estimates produced. Where companies are floated, the stock price provides a continuous indication of market value. The simplest method is Current Cost Valuation More commonly, the price obtained through public (CCV), which simply takes the historic purchase auctions at privatization provides a snapshot of price and rolls it forward by adjusting for inflation market valuation at one point in time. However, and depreciation during the intervening period. it is important to note that the bid price includes the value of future efficiency gains anticipated by the A more sophisticated approach is the Depreciated bidder but unanticipated by the government. This Optimized Replacement Cost (DORC), which may lead to a double dividend for the bidder if the examines the cost of replacing each asset bid price is used as the basis for asset valuation, since individually, and then adjusts for the age of the asset he benefits both from the unanticipated efficiency gain according to an established depreciation schedule. itself and from the higher resulting RAB. A third approach to measuring replacement cost is When asset values are explicitly determined at the Reference Utility methodology, which requires privatization, it is also possible to do so by the regulator to construct a hypothetical company calculating the net present value of future cash that provides exactly the same service as the flows based on the price trajectory that has been regulated company, but at an efficient cost. In determined for the firm (Grout, 2001). However, if theory, the Reference Utility can be constructed from Energy Working Notes 3 scratch, without any accounting data from the regulated company. However, GORC tends to company, based only on bottom-up engineering and provide a stable revenue stream, while under economic parameters. This can be helpful in DORC the revenue stream is inversely related to the overcoming information asymmetries and age of the assets, and therefore tends to cycle up deficiencies in the accounting data. However, in and down. (Ironically, this means that a company practice, it is usually necessary to complement this with very old assets that need to be replaced, would with a top down approach, that starts from real receive a lower revenue, than a company with a accounting data but makes corrections for evident brand new asset base and consequently minimal inefficiencies. The Reference Utility approach can be investment requirements.). The `sinking fund factor' used to determine "efficient" values for both used under the GORC also avoids the creation of operational costs and the asset base required for inequities between different generations of provision of services by network industries. In a consumers by expressing the costs of the electricity forthcoming paper, Alexander and Harris, 2004 note service in the form of a stable perpetuity. the particular challenges faced by asset valuation in the context of large investment programs that entail This highlights the importance of ensuring full the accumulation of substantial new assets during consistency between the chosen method of asset the course of a price review period. The Reference valuation and other relevant components of the Utility approach is flexible enough to accommodate price review methodology, such as the depreciation expansions in the asset base over time, as long as it profile. Thus, for example, a historic cost approach is applied over the appropriate time horizon within to asset valuation should be paired with a nominal which the investments are scheduled to take place. rate of return measure, and a current cost approach to asset valuation should be paired with a real rate The Reference Utility approach is also known as the of return measure. Gross Optimized Replacement Cost (GORC) because it results from a process of optimization International experience that does not take the age of the assets into account. The different treatment of depreciation Every one of these methods is in active use by between the GORC and the DORC methodologies regulators throughout the world, and the choice is reflected in the formula used to translate the between them has frequently generated substantial regulatory asset base into an annuity for price- regulatory controversy (Byatt, 2002). setting purposes. In the case of DORC, the company receives a rate of return on the DORC, In the United Kingdom, utilities were typically sold at plus a depreciation charge determined by the age market values that were lower than replacement of the assets. In the case of GORC, a so-called costs; around 40% lower in the case of electricity `sinking fund factor' is used, which is equivalent to and gas, and as much as 95% lower in the case of the annuity of a loan with a principal equal to water. As a result, British regulators have tended to GORC, a term equal to the economic life of the adopt methodologies based on stock market value, assets, and a rate of interest equal to the regulatory at or near flotation, arguing that investors should cost of capital. Over time, the two methodologies only be remunerated on the basis of what they should give the same revenue stream to the actually paid for the assets. 4 The Regulatory Challenge of Asset Valuation In Australia, where market values have tended to Brazilian electricity case be higher than replacement cost, regulators are increasingly opting for the DORC methodology. The Brazilian electricity sector provides a particularly However, following an appeal presented by a gas interesting recent example of how challenging it can distribution company against the proposal of the be to find a suitable asset valuation methodology, gas regulator to use DORC for asset valuation, in the context of a first time tariff review. A major the Supreme Court ruled that the regulator should sector reform process was initiated in 1995, which reconsider his decision. The court's verdict states among many other measures, included the sale via that regulatory decisions should look beyond private auction of 49% stakes in some 24 State considerations of economic efficiency, to ensure electric distribution utilities, representing more than that sound commercial decisions taken in the past 70% of total electricity sales in the country. are not rendered loss-making as a result of regulatory decisions, and that allowing a regulated In order to provide a reference point for the business to recover the actual purchase price may auctions, each State government established a be appropriate. minimum sale price for the respective utility, based on the results of a discounted cash flow Furthermore, in Australia there has also been methodology undertaken independently by two considerable debate about the asset lives to be separate consultants. Due to intense competition at used in determining depreciation schedules. The the auctions, the companies were sold at an electricity and gas regulators have predominantly average premium of 40% over and above the opted to extend accounting lives, based on minimum sale price, with wide variation between technical studies that show that the economic lives 0% and 100% for the sale premiums observed in of assets can be considerably longer. The same specific cases (Figure 1). Such premiums are not situation can be observed in New Zealand. unusual in Latin America, with a recent study finding that a sample of six telephone companies sold for In Latin America, the Reference Utility approach has an average premium of 80% over the minimum become increasingly popular for the determination sale price, while a sample of six electricity of electricity distribution tariffs (Jadresic, 2002). The distribution companies, outside Brazil, sold for an method, which was first developed in Chile during average premium of 44% (Sirtaine et al., 2004). the 1980s, can be used to determine both efficient operating expenditures, and an efficient regulatory The successful bidders were awarded concession asset base, and as such provides an integrated contracts of 30 years duration, to be regulated by approach to tariff setting. During the course of the the new federal agency ANEEL, which would also 1990s, it has been applied in distribution tariff oversee the concessions granted to the remaining reviews by regulators in Argentina, El Salvador, 40 public utilities. Guatemala, Nicaragua, Panama, Peru and Uruguay. It has also been used in other regulated utilities, Since privatization, a number of factors have such as gas, telecom, and water. combined to make the operating environment for the distribution utilities particularly challenging. First, due to difficult macroeconomic conditions, the Energy Working Notes 5 Figure 1: Percentage premium of market value over minimum sale price Elektro Energipe AES Sul Enersul RGE Coelba Cosern CPFL Cerj Coelce Cemat Escelsa Light Eletropaulo Celpa Bandeirante 0 20 40 60 80 100 Source: ABRADEE, 2002. Brazilian currency, the Real, devalued between legal framework is that of preserving the `financial 1998 and 2002 to around a third of the level and economic equilibrium' of the concession prevailing at the time of privatization. Second, a contract (as opposed to the concessionaire). major regulatory dispute subsequently arose about However, although widely used in France, this the arrangements for pass-through of uncontrollable concept has never been given a satisfactory expenditures, such as power purchase costs, leading operational definition in the Brazilian context. to a major lag in tariff adjustments and consequential financial losses to the distribution This methodological vacuum became apparent in companies. Finally, owing to a recurring drought one of the first electricity distribution tariff reviews, and a number of regulatory problems that retarded performed for ESCELSA in the year 2001. In the construction of new thermal plants, Brazil's absence of a clear and predefined method for asset predominantly hydroelectric system faced a major valuation, the subject became a point of major supply crisis in 2001. As a result, consumers were controversy between ANEEL and the concessionaire. rationed to 80% of the previous year's demand, During this review, ANEEL initially argued for a reducing distribution revenues by an estimated US$2 historic cost valuation of assets of R$685m. billion on aggregate. However, this was contested by the concessionaire on the grounds that it was completely outdated. First round of tariff reviews Given that by Law 9.249 of 1995 rules out the use of inflationary indices to correct asset values, the The new legal framework provided for periodic tariff concessionaire presented two alternative estimates reviews to be conducted every four to five years, but of replacement cost based on different accounting was largely silent about implementation details, adjustments to the asset value. The regulator including the procedure for asset valuation. The accepted the use of an adjustment based on US only general principle established in the Brazilian GAAP principles, yielding an asset value of 6 The Regulatory Challenge of Asset Valuation R$988m, but insisted that this was a provisional Consequently, ANEEL came down on the side of measure subject to later revision once a more replacement costs as the most defensible definitive approach to asset valuation had been methodological basis for asset valuation. However, determined, and that the decision in no way it rejected the simple CCV, arguing that this fails to established a precedent for future reviews (see take into account the effects of technological Technical Note No. 097/2001). change that reduce the cost of capital goods over time. Instead, the agency opted for the more Asset valuation debate sophisticated DORC approach, accompanied by eventual benchmarking adjustments based on This essentially left the methodological question cross-company comparisons. ANEEL argued that, open for the remaining round of first reviews by using today's replacement cost value for scheduled to take place over the period 2003/04, comparable assets, the DORC incorporates the and in particular for the first batch of 17 reviews effects of technological change. scheduled between February and December 2003. Thus in June 2002, ANEEL published Technical In the Public Audience No. 005/2002 that followed Note No. 148/2002 identifying a number of the publication of ANEEL's Technical Note, the alternative approaches to asset valuation, and industry association ABRADEE opposed the laying down its preferred approach. Figure 2: Percentage divergence In its note, ANEEL rejected the use of approaches between valuation methods based on market valuation. The reason given was that the minimum sale prices calculated in the Brazilian auctions were not determined on a consistent methodological basis, with different States making varying assumptions about discount rates, demand growth, tariffs and investment horizons. Moreover, in many cases, State governments added premiums to the discounted cash flow values in order to maximize fiscal proceeds. ANEEL also rejected the use of final auction prices, given that they incorporated a premium that reflects strategic business considerations, and were artificially inflated by the fact that the holding companies were able to obtain tax relief on the value of their acquisitions. Furthermore, given that only 24 out of 64 electric distribution utilities had been privatized, the use of market valuation did not provide a comprehensive Notes: Based on aggregate values for a sample of 16 utilities; Minimum sale price=100. and consistent methodology that could be applied Source: ABRADEE, 2002 to all the distribution companies in the sector. Energy Working Notes 7 regulator's choice for asset valuation, pointing to the attempts were unsuccessful, and by early 2003 it wide divergence between market value and became apparent that the replacement cost replacement cost methodologies. Based on a sample approach would prevail. of 16 of the largest privatized distribution utilities, ABRADEE reported that CCV was on aggregate only From theory to practice 50% of the actual market value paid by the concessionaires. Although no estimates of the DORC In Resolution No. 493/2002, ANEEL began to had ever been made for the Brazilian electricity grapple with the implementation details of the distribution sector, ABRADEE inferred that DORC DORC methodology, providing over 30 pages of could only be lower than CCV (given the adjustments practical guidelines. These established that the made for technological change), and hence the methodology was to involve individual divergence would potentially be even greater. documentation of each of the company's assets; although with some scope for taking shortcuts with In an earlier statement presented to ANEEL after generic smaller assets such as vehicles and publication of Technical Note No 148/2002 but furniture. This would require reconciling information before the Public Audience No. 005/2002, in the asset register (often of poor quality), with ABRADEE had argued for the use of the final physical inspections of assets, in some cases by auction price as the basis for asset valuation. sampling. Each asset was to be valued at its current However, at the public audience ABRADEE purchase price, adjusting for age via a linear proposed that the minimum sale price--which lies depreciation schedule, and discounting any approximately half way between the final auction proportion of the asset that could not reasonably be price and the CCV--would be the fairest expected to be used within the next ten years. It alternative, because it avoids the strategic should be noted that this adjustment introduces an distortions that took place in the bidding process. additional regulatory risk of write-off of sunk investments in under-utilized assets. ANEEL countered this position by repeating its earlier arguments against the minimum sale price, The valuation process was to be conducted by firms and pointing out that the regulator is not legally previously accredited by ANEEL, and subject to obliged to remunerate investors, but only to ensure random quality checks by ANEEL staff. Initial the financial and economic equilibrium of the estimates suggested each company valuation would concession. Notwithstanding industry opposition, take 120 days to complete. Furthermore, Article 10 ANEEL officially adopted the DORC methodology of the resolution empowered ANEEL to make via Resolution No. 493/2002. adjustments to asset valuations for specific companies based on benchmarking of efficiency ABRADEE subsequently appealed against ANEEL's across companies, although no further clarification choice of replacement cost rather than minimum was provided as to how this would be done. sale price as an asset valuation methodology; first to ANEEL directly and later to the courts. ABRADEE Initially, it appeared as though this entire process asked for immediate suspension in the application would need to be repeated every four to five years of Resolution No 493/2002. However, these ahead of each successive tariff review, due to the 8 The Regulatory Challenge of Asset Valuation Table 1. Chronicle of events AUGUST 2001 ANEEL publishes Technical Note No. 097/2001 reporting provisional use of replacement cost asset valuation methodology for ESCELSA tariff review. JUNE 2002 ANEEL publishes Technical Note No. 148/2002 discussing asset valuation options and identifying DORC as preferred methodology. JUNE TO JULY 2002 ANEEL convenes Public Audience No. 005/2002 to consult on asset valuation methodology. SEPTEMBER 2002 ANEEL issues Resolution No. 493/2002 adopting the DORC methodology OCTOBER TO ABRADEE appeals in the first instance to ANEEL and in a second instance to DECEMBER 2002 the Courts against ANEEL's choice of the DORC methodology, asking for immediate suspension of its application and demanding the use of the minimum sale price as a basis for asset valuation (Ação Ordinária nº 2002.34.00.039564-0/DF, 3ª Vara Federal da Seção Judiciária do Distrito Federal). The Tribunal rejected to suspend application of Resolution No 493. FEBRUARY TO JULY 2003 ANEEL publishes Technical Notes Nos. 40-43, 48-52, 97, 119, 127/2003 reporting provisional asset valuations used in 12 tariff determinations for each company based on replacement cost adjusted to a cap based on the Reference Utility. AUGUST 2003 ANEEL publishes Technical Note No. 178/2003 providing further clarification and guidelines for the application of the DORC methodology. FEBRUARY TO JULY 2004 By these dates, ANEEL promises to hold another Public Audience on the use of comparative efficiency adjustments in asset valuation, and to publish definitive tariff determinations. restrictions on indexation of asset values under methodology proved to be more complex than Brazilian tax law. However, in the final version of the anticipated, such that ANEEL found several methodology for Asset Valuation described in the inconsistencies in the data submitted. In response, Resolution N° 493/2002, ANEEL modified that ANEEL ran a series of training workshops for the approach by allowing DORC to be rolled forward accounting firms involved in the asset valuation through the addition of net new investments at the process, and in August 2003 published a new end of each tariff period as well as adjustments to Technical Note No. 178/2003 providing around 50 reflect movements in the market prices of assets pages of more extensive guidelines on how to apply (without necessarily reflecting the full extent of the methodology. general price inflation in the intervening period). However, in the meantime, ANEEL was legally By February 2003, the first set of companies had obliged to publish tariff determinations for the first presented their proposed asset valuations based on batch of 12 distribution concessionaires between the DORC approach. The implementation of the February and July 2003. Having concluded that the Energy Working Notes 9 DORC estimates were not yet sufficiently reliable to suggests that the configuration of electricity be used for tariff setting purposes, the Agency distribution networks for these companies has decided to base the reviews on a provisional tended to follow sound technical procedures over estimate of the regulatory asset base. In common time, and may therefore make it easier to reach a with the ESCELSA review, the provisional asset value consensus between company demands that the RAB was based on the replacement cost of the assets. consider the historic accumulation of assets in each However, in contrast to the ESCELSA case, ANEEL company and regulatory concerns that the RAB used the Reference Utility approach to establish a should not pass on the cost of inefficient investment cap on the level of gross replacement cost that decisions to electricity consumers. would be considered in the tariff determination, basing itself on the benchmarking provisions laid Key lessons learned down in Article 10 of Resolution No. 493/2002. Operationally, this was possible because ANEEL Although as yet unconcluded, the story of the had already developed Reference Utilities to Brazilian electricity distribution reviews provides a evaluate the efficiency of operating expenditure, interesting illustration of the complexities and which provided a basis for estimating the regulatory controversies that often surround regulatory asset base. As a result of these adjustments, decisions about asset valuation. A number of key different companies received between 65%-90% of lessons can be drawn with wider relevance. their respective replacement cost. · The choice of asset valuation methodology must In the Technical Notes that lay out the tariff necessarily be guided by the specific details of determinations (Nos. 040-043,048-052, each regulatory context; there is no single 097,119,127/2003), ANEEL underlines the approach that is correct in every case. In making relevance of the Reference Utility approach to the this choice, it is particularly important to consider asset valuation problem, arguing that it represents the method of privatization used, the quality of the closest approximation to the costs that would available accounting information and the legal be faced by an efficient new entrant to the market. framework. The Agency also promises to hold a Public Audience in order to finally settle upon the · Asset valuation presents a strong trade-off methodology to be used to make efficiency between simplicity and accuracy. In countries comparisons between companies in accordance with a weak accounting history, it may be with Article 10 of Resolution No. 493/2002, and necessary to opt for simpler approaches at least commits itself to providing the definitive tariff in the short term. determination within a 12 month period. · The distance between theory and practice can be In this context it is interesting to notice that the quite considerable. It is therefore advisable to put results of calculations performed for 17 companies theoretically attractive methodologies to the show that in all the cases the divergence between empirical test, before espousing them as the GORC and the gross replacement cost of regulatory policy. existing assets is no more than 20%. This result 10 The Regulatory Challenge of Asset Valuation · It is extremely important to provide, at least broad · Once a baseline asset valuation has been methodological guidance, on asset valuation in established at the first review, it is extremely the original regulatory framework at the time of important to maintain this policy over time, privatization. Doing so, can avoid substantial making it preferable to establish a simple and problems and conflicts at the first regulatory predictable rule for rolling it forward to future review, and ensures that investors do not form reviews; for example, by adjusting for inflation inappropriate expectations. Even when this is and net new investment. This has the advantage done, there will still be significant methodological of reducing the administrative costs of the issues to be worked out at the first regulatory process, and (most importantly) creating a stable review. As a result, it is important to initiate this and predictable rule for asset valuation. Large process well in advance of the review, and to jumps in regulatory asset values should be provide for adequate consultation channels with avoided, and if absolutely essential, should be all stakeholders, as is well illustrated by the use of phased in gradually so as to avoid corresponding Public Audiences and Technical Notes in the jumps in tariffs and basic financial indicators. Brazilian case. · The annuity value (sinking fund factor) that arises from the GORC methodology provides a conceptual ceiling on what customers should pay towards capital costs. The reason is that this value represents the amount that a new entrant in a competitive market would require to sustain its assets in the long run. · The choice of accounting lives for depreciation of regulatory assets raises issues of inter- generational equity. To the extent that accounting lives are shorter than economic lives, where accelerated depreciation schedules are used, the burden of asset replacement will fall disproportionately on current customers. · The process of regulation often presents different accounting needs to the process of corporate taxation, and as a consequence it may be necessary to use separate accounting norms for each of these purposes. Energy Working Notes 11 BIBLIOGRAPHY Alexander, I. and C. Harris, 2004 (forthcoming), Jadresic, 2002 `The Model Company Approach for Tariff The Regulation of Investment in Utilities: Concepts Regulation in Electricity Distribution', Report by Alejandro and Applications, mimeo available from the authors Jadresic, Former Energy Minister of Chile, to the World Bank and the Ministry of Mines and Energy, Brasilia. ANEEL, 2001 `Segunda Revisão Tarifaria Periódica da Espírito Santo Centrais Elétricas S/A ­ ESCELSA', Mercados Energéticos, 2002a,b,c `Contribuição ao Nota Técnica No. 097/2001/SRE/ANEEL, Brasília. Debate Publico sobre a Metodologia de Avaliação de Ativos no Sector Elétrico Brasileiro: Empresas ANEEL, 2002 `Estabelece metodologia e critérios Distribuidoras COELBA, ELETROPAULO, ENERSUL, gerais para definição da base de remuneração Relatórios ao Banco Mundial e o Ministério de Minas visando a revisão tarifária periódica das conces- e Energia, Brasília. sionárias de distribuição de energia elétrica', Resolução No. 493/2002, ANEEL, Brasília. Sirtaine, S., Pinglo, M.E., Foster, V. and Guasch, J.L. 2004 'How profitable are private infrastructure con- ANEEL, 2003 `Revisão Tarifária Periódica da cessions in Latin America? Empirical evidence and Concessionária de Distribuição de Energia Elétrica regulatory implications' Forthcoming in the Policy CEMIG, CPFL, CEMAT, ENERSUL, RGE, COELCE, Research Working Papers Series, World Bank, COSERN, ENERGIPE, COELBA, ELETROPAULO, Washington DC CELPA, ELEKTRO', Notas Técnicas Nos. 040- 043,048-052, 097, 119, 127/2003/SRE/ANEEL, Working Notes Brasília. The Working Notes series of the Energy and Mining Sector Board are intended to complement the ANEEL, 2003 `Esclarecimentos sobre a aplicação Energy and Mining Sector Board Discussion Papers. Working Notes are lightly edited notes prepared by da Resolução ANEEL No. 493', Nota Técnica No. World Bank staff on topical issues in the energy 178/2003-SFF/SRE/ANEEL, Brasília. sector. Working Notes are only available electronically at www.worldbank.org/energy. Byatt, I. 2002 `Regulation and Asset Valuation', Comments should be emailed to the authors(s). Report by Sir Ian Byatt, Former Director General of Water Services of the United Kingdom, to the World Disclaimer The findings, interpretations, and conclusions expressed Bank and the Ministry of Mines and Energy, Brasilia. in this paper are entirely those of the authors and should not be attributed in any manner to the World Bank, to its Grout, P. and A. Jenkins, 2001, Privatization of affiliated organizations, or to members of its Board of Utilities and the Asset Value Problem, CMPO Executive Directors or the countries they represent. Working Paper Series No. 01/41, University of Bristol