BUCHAREST MAY 2008 CHART OF ACCOUNTS WORKSHOP REGULATORY COMMISSION FOR ENERGY OF REPUBLIC OF SRPSKA

BUCHAREST MAY 2008 How assets are valued?  Basis:  Rulebook on tariff methodology and tariff procedure  GUIDELINES for implementation of regulatory chart of accounts  Fixed assets are valued at purchase costs or fair value, if revaluation occurs after acquisition.  Valuation has to be performed in accordance with IAS and IFRS.  Assets are not excluded from regulatory assets base because of age, but only for use in operation.

BUCHAREST MAY 2008 Treatment of O&M costs a.How are costs evaluated for reasonableness?  Reasonableness of costs is assessed according to the nature of cost analyzing its purposefulness, analyzing quantities and prices and using benchmarking.  Reasonableness of costs to be recovered from tariffs is assessed taking into consideration prevailing conditions and available information when the decision to incur costs was brought.

BUCHAREST MAY 2008 Treatment of O&M costs  Reasonableness of costs of “hired services” is assessed against basic principle of prudence: company cannot perform the service with its own resources (lack of equipment or qualified staff) prudence in acquisition (procured in the process of public tendering or otherwise proved to be the most convenient option)  If the company maintain its assets, it should not be costly more than if performed by third person.

BUCHAREST MAY 2008 The method for allocating costs  Our favorite question in tariff case: What tasks, in what scope and at which price were performed by parent company for your behalf?  If any service is performed by related party, it should be procured in fair procedure.  Allocation of costs that cannot be procured externally Allocation of costs of management, sale, marketing, quality management, legal and HR, public relations, call centers etc on different activity within the company Allocation of administrative and general corporative costs of related party on different activities is disclosed in the reporting forms. In the tariff application form applicant explains every allocation key applied for allocation of costs. The allocation keys have to be defined in advance as a part of the company’s accounting policies.

BUCHAREST MAY 2008 The basis upon which costs are disallowed  Generally, only major costs are analyzed.  If the asset is not included in the regulatory assets base, no related cost is allowed.  If any cost is not procured prudently, it is allowed at lower rate or totally disallowed.  If distribution has losses of electricity higher than approved it will be at its own costs.

BUCHAREST MAY 2008 Treatment of the cost of new construction  New construction is not included in the rate base, unless the applicant can prove that it will be commissioned during the tariff period.  The assessment is based on the data in the reporting forms and, if necessary, documents and evidence.

BUCHAREST MAY 2008  THANK YOU