The Challenge of Determining the WACC of Electricity Transmission Service Operators: The Brazilian Case

Abstract

Objective: ANEEL, the Brazilian National Electric Energy Agency, regularly renews its tariff model to remunerate the electricity transmission service operators. This study focuses on the conceded rate of return of the operators’ regulatory capital. We aim to contribute to the methodological improvement of the regulator’s approach in future tariff reviews by focusing on issues concerning the calculation of this key figure.Method: We critically review ANEEL’s concept of the regulatory rate of return, stressing issues concerning the calculation of this key figure.Originality/Relevance: We are not aware of any research that analyzes ANEEL’s actual model for calculating the regulatory rate of return. In line with ANEEL’s search for support, we intend that our considerations will help improve the regulator’s approach and serve as stimuli to search for answers to open questions.Results: We revealed five aspects that give rise to deeper reflections. Our findings suggest that the concept for determining the regulatory rate of return could be adapted to better reflect the Brazilian financial market conditions.Theoretical/Methodological contributions: As a main finding, the sample of US electric energy companies involved in calculating the so-called ߠfactor should be reconsidered. Furthermore, to compute the weights of these companies to calculate the sample’s unleveraged ß, companies with missing data should be excluded. Moreover, instead of gathering the data for the WACC calculation from quite different periods, these periods should be aligned on a theoretical basis.