Utility ratemaking

These include determining materiality, classification issues, failure to comply with IAS 33 in relation to earnings per share and failure to file interim accounts in connection with a dividend payment. As of , the CEO participates [

Corporate governance developments

This creates competing aims of capital attraction and fair prices for customers. Utility companies are therefore allowed to charge "reasonable rates," which are generally regarded as rates that allow utilities to encourage people to invest in utility stocks and bonds at the same rate of return they would in comparable non-regulated industries.

State laws typically restrict utilities from large, sudden rate increases. Utilities should implement new rates over time so that consumers and business can adapt to the changing prices. This is known as the principle of gradualism. The price of a utility's products and services will affect its consumption.

As with most demand curves , a price increase decreases demand. Through a concept known as rate design or rate structure , regulators set the prices known as "rates" in the case of utilities and thereby affect the consumption. With declining block rates , the per-unit price of utility consumption decreases as the energy consumption increases.

Typically a declining block rate is offered only to very large consumers. If conservation is the goal, regulators can promote conservation by letting prices rise. A third possible rate design is a flat rate which charges the same price for all consumption.

Ratemaking distributes wealth from consumers to utility owners. Ratemaking also involves redistribution of wealth among and within classes of customers. Each group is sometimes further subdivided. The compensation received by the executive in utility companies often receives the most scrutiny in the review of operating expenses.

Just as regulated utilities and their governing bodies struggle to maintain a balance between keeping consumer costs reasonable and being profitable enough to attract investors, they must also compete with private companies for talented executives and then be able to retain those executives. Constraints from regulation have been shown to affect the level of compensation received by executives in electric utilities. Executive compensation usually consists of four parts: Regulated companies are less likely to use incentive-based compensation in addition to base salaries.

Executives in regulated electric utilities are less likely to be paid for their performance in bonuses or stock options. Executives in regulated electric utilities also have less managerial control than those in unregulated or private industries. Limiting their control has been shown to reduce investment opportunities. The same constraints are placed on the board of directors for the utility by the monitoring or oversight of the utility commission and they are less likely to approve compensation policies that include incentive-based pay.

These companies have more political constraints than those in a favorable regulatory environment and are less likely to have a positive response to requests for rate increases. Just as increased constraints from regulation drive compensation down for executives in electric utilities, deregulation has been shown to increase compensation.

The need to encourage risk-taking behavior in seeking new investment opportunities while keeping costs under control requires deregulated companies to offer performance-based incentives to their executives. Responses are requested by August 6, This was consulted on in October when views were sought on introducing that framework through company annual reports to replace the reporting element of the CRC Energy Efficiency Scheme. If approved by Parliament in their current form, the Draft Regulations will come into force on April 1, and apply to financial years beginning on or after that date.

Detailed guidance on how to comply with the new requirements is expected to be published by January The draft Companies Miscellaneous Reporting Regulations , While the Regulations will not become law until approved by Parliament, BEIS recognises the importance of providing companies and stakeholders with as much time as possible to understand the proposed changes to the law. The Companies Miscellaneous Reporting Regulations , It points out that companies should assess and explain the effects of the new standards and should provide responses which are clear, concise and company-specific, and focus on the areas of change.

Directors are expected to disclose significant judgements made in applying the new standards and to quantify and explain sources of estimation uncertainty. These include determining materiality, classification issues, failure to comply with IAS 33 in relation to earnings per share and failure to file interim accounts in connection with a dividend payment.

The report notes that blockchain also called a distributed ledger is a type of shared database which creates a permanent record of transactions. Since it is distributed across a number of participants in a network and is not under the control of a single participant, it is robust.

This, combined with the fact that any changes made to the data are clear to all participants, ensures both the data and the network are resilient. As a result, the report comments that blockchain is different from a traditional database because of the way it creates trust and resilience and it looks at whether blockchain could solve some of the existing corporate reporting challenges, which include:.

The report concludes that while blockchain is not the only possible answer or even the best , it does have the potential to solve some of the challenges in the stages of corporate reporting as follows:. As a result, the report suggests that blockchain merits consideration and experimentation by preparers, regulators and users of corporate reporting and it sets out specific actions for each of these different parties in order to take blockchain forward.

The next phase of this project, including examples of how companies have put the principles in the report into practice, will be published in Autumn Use of cookies by Norton Rose Fulbright. We use cookies to deliver our online services. Details and instructions on how to disable those cookies are set out at nortonrosefulbright.

By continuing to use this website you agree to our use of our cookies unless you have disabled them. Online services, resources, and tools Technical resources Stay connected. Corporate governance and narrative reporting developments — Summer Publication July Introduction Corporate governance developments Narrative reporting developments.

Key changes to note include the following: Provision 5 requires the board, in the annual report, to describe how the interests of key stakeholders and the matters in section Companies Act have been considered in board discussions and decision-making.

In relation to engagement with the workforce, it permits one or more of a combination of the following methods to be used: A director appointed from the workforce; A formal workforce advisory panel; or A designated non-executive director.

However, the FRC has introduced flexibility by stating that if the board has not chosen one or more of these methods, then the company must explain the alternative arrangements it has in place and why these are effective. So far as the independence of non-executive directors is concerned, Provision 10 has been amended in light of feedback. Provision 10 only relates to non-executive directors and not also to the chair, as proposed in the consultation, and while it sets out a list of criteria against which independence is to be determined, the board retains the discretion in the Code, to consider a non-executive director to be independent even if any of those or other relevant circumstances apply, provided that a clear explanation is given.

Provision 11 requires at least half excluding the chair , rather than the majority, of the board to be independent non-executive directors, so reflects the wording in the Code. The reasons for permitting significant appointments should be explained in the annual report. So far as smaller companies are concerned, they will not be obliged to have an external board evaluation but Provision 21 encourages all chairs to consider using such evaluations.

So far as membership of the audit and remuneration committees are concerned, the FRC has reverted in the Code to the requirements in the Code, namely that companies below the FTSE can have such committees comprising two rather than three independent non-executive directors.

However, in a change from the Code, the board chair of a smaller company can no longer be a member of the audit committee. In relation to remuneration, Principle R makes it clear that it is the responsibility of the remuneration committee rather than the board, to exercise discretion over remuneration outcomes.

Remuneration committees will be expected annually to consider whether there are circumstances which warrant the exercise of discretion when determining remuneration outcomes. Provision 33 clarifies that the remuneration committee only has responsibility for reviewing workforce remuneration and related policies, rather than having oversight of these matters as the FRC originally proposed. This is set out in Provision Provision 38 makes it clear that executive pension contributions should be in line with those available to the rest of the workforce.

The language has been made less prescriptive as it was felt that it could be viewed otherwise as a set of requirements. Changes have been made to the introduction to emphasise the importance of the Guidance in promoting high standards and to encourage its use alongside the Code.

The six Principles and accompanying guidance are as follows: Principle One - Purpose: An effective board promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose. A well-defined purpose will help companies of all sizes and structures to articulate their business model, and develop their strategy, operating practices and approach to risk. In large private companies, key shareholders and the board should work together to ensure the company works with a clear sense of purpose.

Principle Two - Composition: Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of the board should be guided by the scale and complexity of the company.

An effective board embraces diversity, promotes accountability and incorporates objective thought that promotes appropriate constructive challenge and effective decision-making.

Board membership must be broad enough to provide for an appropriate degree of challenge and analysis but agile enough to enable efficient and effective decision making. Principle Three - Responsibilities: A board should have a clear understanding of its accountability and terms of reference.

Its policies and procedures should support effective decision-making and independent challenge. Constitutional documents should set out policies and procedures that govern the internal affairs of the company including matters relating to authority, role and conduct of directors. Advisory or board committees could be established with clear terms of reference and independent challenge in board decision-making should be part of effective corporate governance practices. A board should have confidence in the integrity of information used for decision-making and reported by a company.

The company should establish internal processes to ensure effective operation of systems and controls and that the quality and integrity of information is reliable, enabling directors to monitor and challenge the performance of the company.

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