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Gonçalves, E.*, Dutra, J.*, Barbalho, A. “Utilities of the future? The effects of newly emerging network structures on the cost of capital and Financials of Energy Distribution Firms”

The paper “Utilities of the future? The effects of newly emerging network structures on the cost of capital and Financials of Energy Distribution Firms” (Gonçalves, E., Dutra, J., Barbalho, A.) will be presented at the 7th Conference on the Regulation of Infrastructures (21-22June, 2018). 

ABSTRACT

There is a profound transformation on the electricity sector worldwide being brought by the deployment of Distributed Energy Resources – DER. This transformation is disruptive in nature, affecting traditional business models based on economies of scale and scope – characteristics of natural monopolies and networks and requires revisiting and revising the traditional revenue requirement calculation adopted in the utilities’ regulation, based on earning a rate of return (WACC) on the value of investments (“Regulatory Rate Base”). Brazilian distribution companies constitute an interesting case study for the evaluation of potential impacts of these changes on the financial structure and firm´s cost of capital considering the recent discussion about the level of regulatory cost of capital used to compensate investments in the segment. Thus, in this article we examine the potential effects of new business models on the financial risks perceived by electric energy distribution firms and its implications for determining the regulated rate of return.

ABOUT THE AUTHORS

Edson Gonçalves is a senior researcher at the Center for Studies in Regulation and Infrastructure at Fundação Getulio Vargas, Brazil, since 2014.  Prof. Gonçalves was a senior expert/principal at Accenture Management Consulting with focus on Risk Management and Financial Modeling. His current research includes energy economics, infrastructure economics, risk modeling, finance and governance. Graduated in Engineering Mechanics, Prof. Gonçalves obtained MSc. and PhD degrees in Economics at Fundação Getulio Vargas. He teaches at the School of Economics and at the School of Business Administration (Fundação Getulio Vargas). He is a member of GARP (Global Association of Risk Professionals) and PRMIA (Professional´s Risk Managers International Association).

 Joisa Dutra is founder and Director of the Center for Studies in Regulation and Infrastructure at Fundação Getulio Vargas, Brazil, from 2010. Prior to founding CERI, Prof. Dutra was Director at the Brazilian Electricity Regulatory Agency (ANEEL) from 2005 to 2009. At CERI Prof. Dutra has been focusing her research work on topics such as economics of regulation for network industries, energy economics, auctions, economics of contracts, governance, risk and financing. Graduated in Economics, Prof. Dutra obtained MSc. and PhD degrees at Fundação Getulio Vargas. She teaches at the School of Economics graduate school. She was a visiting Prof. at Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, Harvard University in 2010 as well as at University of Queensland, through the Australian Leadership Award Fellowship Program in 2013. With a distinct career in regulation economics, Prof. Dutra is member of Electricity Council, World Economic Forum since 2014.

*presenting author