Presentation for investors...Key financials in 2004 Net sales Total assets Interest-bearing debt...
Transcript of Presentation for investors...Key financials in 2004 Net sales Total assets Interest-bearing debt...
- a leading energy companyin the Nordic area
Presentation for investorsMay 2006
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Disclaimer
This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares.
Past performance is no guide to future performance,and persons needing advice should consult an independent financial adviser.
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• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material
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Fortum's strategy
Become the leadingpower and heat
company
Become theenergy supplier
of choice
Benchmark business performance
Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth
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Towards an open European power market
• Market-based development • Increased competition• Increased efficiency
EU Directive: Market liberalisation, i.e., free choice of supplier
EU Commission Integration of national power strategy: markets through regional
markets into one European power market
1990's 2000 - 2010 -
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Nr 1 Nr 2Power generation
Heat Electricity sales
Distribution
A leading Nordic power and heat company
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Baltic countriesHeat sales 1.2 TWhDistribution cust. 22,000Poland
Heat sales 3.9 TWhElectricity sales 20 GWh
NW Russia(in associated companies)Generation ~6 TWhHeat production ~10 TWh
NordicGeneration 51.2 TWhElectricity sales 58.2 TWhDistribution cust. 1.4 mill.Electricity cust. 1.2 mill.Heat sales 19.4 TWh
Presence in focus market areas
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Operations throughout the entire power and heat energy chain
• Best-in-class physical and financial market operations
• Efficient operation and maintenance services for industry and energy companies
Portfolio Mgmt & Trading
Generation
Heat / Värme
Distribution
Service
• Nordic leader in district heating with strong industrial co-operation and a developing presence in the Baltics and Poland
• Leading Nordic distribution company with 1.4 million customers in Finland, Sweden, Norway and Estonia
• One of Europe’s most efficient generators with an approx. 14% market share of Nordic consumption
• Wide product offering for 1.2 million business and private electricity sales customers Markets
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Power and heat production in Fortum
20.6 TWh in 2005Total production capacity 8,252 MW
Fortum’s Nordic heat production
Oil 10%
Peat 7%
Heat pumps, electricity16%
Waste 6%
Biomass fuels 24%
Natural gas 9%
Other 11%
Coal 17%Hydro power 42%
Peat 1%
Coal 3%
Other 2%
Nuclear power 50%
Biomass 2%
51.2 TWh in 2005Total generation capacity 11,136 MW
Fortum’s Nordic power generation
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Strong dividend growth
Fortum's aim is to pay a dividend corresponding to an average payout ratio of 50% to 60%
Total ~ 2,750 MEUR
* 0.58 from continuing operations
1999 2001 20032000 2002 2004
0.18 0.23 0.26 0.310.42
0.58
2005*
1.12
Dividend per shareEUR
0.13
19980.
580.
54
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Excellent share performance
Market valueEUR billion
4.05.3
6.9
11.8
31 Dec2001
31 Dec 2004
31 Mar2005
Neste Oil as
dividends
3 May 2006
13.1
-3.3
31 Dec2000
3.4
31 Dec2002
31 Dec2003
17.9Share priceIndex
0
50
100
150
200
250
300
350
400
450
1/01 1/02 1/03 1/04 1/05 1/06
500
Dow Jones 600
Fortum
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• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material
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wholesale priceSupply Demand
retail price
The wholesale market is liquid and Nordic, but retail markets are local
GenerationNordic wholesale market (Nordpool)
RetailLocal retail markets
Retail customers
Industry
DemandSupply
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2005 figures; the effects of the structural changes in Denmark have been taken into account.
Fortum
Dong Energy
Vattenfall
others E.ON
53%Hafslund
PlusenergiSEAS-NVE
HelsinkiFjordkraft
Östkraft
Fortum
Vattenfall
Dong Energy
others
Hafslund
E.ON51%
HelsinkiSEAS-NVE
StatkraftGöteborg
BKK
Fortum
Vattenfall
Dong Energy
others
Statkraft
29%
E.ON
PVO
E-CO Energi
Helsinki
Norsk Hydro
BKK
Still a highly fragmented Nordic power market
Distribution
14 million customers>500 companies
Retail
14 million customers ~450 companies
Generation
395 TWh> 350 companies
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New capacity will be needed
Demand and capacity development in the Nordic market
Existing/remaining capacityCommitted new capacity
0
100
200
300
400
500
2000 2004 2005 2010 2015 2020
TWh
• Electricity demand is expected to increase around 55 TWh by 2020
• Committed plans of new capacity approx. 20 TWh
• Additionally:– effect increases in Swedish
nuclear may bring up to 8 TWh more capacity
– possible closures of current capacity may take away up to 10 TWh by 2020
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New capacity will require an EUR 35+ price
Source: NEA & IEA "Projected Cost of Generating Electricity", 2005 update (average of European projects); Elforsk: "El från nya anläggningar", 2003.
Coal Gas Nuclear Hydro Wind0
10
20
30
40
50
60
70
80EUR/MWh
Fuel costs, excl. CO2 costs
Fixed costs( variation)
Source: Nord Pool, Fortum
0
10
20
30
40
50
60
-94 -04-02-00-98-96 -06 -08
FuturesMay 2, 2006
EUR/MWh
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Spot history and forwards in Europe
Source: Reuters, OMELSource: Reuters, OMEL
EUR/MWhYearly moving average spot price Forwards
EUR/MWh
UK
Dutch
German
Nord Pool
SpanishMay 2, 2006
2001 2002 2003 2004 2005 2006 2007 2008 20090
10
20
30
40
50
60
70
80
90
100
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Nordic market becoming more integrated into Europe
• In 2005, Nord Pool introduced aspot market area "KONTEK" to facilitate market coupling on the Kontek cable
• NorNed (Norway - The Netherlands)by 2008
• Estlink (Estonia - Finland) by 2007• Nordel priority projects enhance
Nordic power market integration
PresentUnder construction
DiscussedPlanned
2750 1500
1300
300
5060
900
2200
900
1200600
1000 200
125
600
10001600
2500
35001700
1500800
500
2050
70
1040630 (490)+901600
550600
1200
3800
700
350
600
+100
100+ 200
1000
600
600
+200
1000
550
+300
+800
1000
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Source: , ; market prices May 3, 2006 ; 2006-2008 future quotations
Fuel and CO2 allowance prices
Gas price (UK)
0
20
40
60
80
100
120
GB
P / t
herm
2004 2005 20082006 2007
CO2 price
05
101520253035
EUR
/ tC
O2
2004 2005 20082006 2007
Oil price
01020304050607080
USD
/ bb
l
2004 2005 20082006 2007
Coal price
0102030405060708090
USD
/ t
2004 2005 20082006 2007
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Nordic water reservoirs
Source: Nord Pool
week
rese
rvoi
r con
tent
(TW
h)
0
20
40
60
80
100
120
2000 2005 2006 reference level
1 5 9 13 17 21 25 29 33 37 41 45 49 53
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• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material
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The large Russian power market is undergoingmajor change
Source: IEA
• A major need for new capacity
• Big potential for efficiency improvement
Power generation 2003
0
500
1 000
1 500
2 000
USChin
aJa
pan
Russia Ind
iaGerm
any
Canad
aFran
ce UKNord
icBras
il
> 4,000TWh
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Development of Russian power industry –a Nordic/Western analogy
Unbundling of businesses by type of activity
Competitive businesses:
Market liberalisation in competitive businesses
• Generation• Sales
Pricing model reform – from tariff regulation to competitive pricing
Regulated monopolies:
• Transmission• Distribution
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• "Power industry law" approved• Restructuring of regional energos (P&H companies)• Formation of new companies• Establishment of Russian power exchange (ATS) • Launch of the free-trade sector of the wholesale market• Introduction of vested bilateral contracts for a transitional
period to replace the regulated sector of the wholesale market• Launch of balancing power market• Competitive market of ancillary services and generating capacity• Gradual liberalisation of the retail market
Key steps in the reform
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Reform impacts industry structure
Competitive businesses
14 territorial
generation companies
(TGCs)
6 thermal wholesale generation companies
(WGCs)
1 hydro wholesale generation company (WGC)
<49% 65 -100%
System operator
0% 75 -100%
Holdings of guaranteeing
suppliers, isolated energos
48%
Federal Grid
Company (FGC)
4-5 inter-regional
distribution companies
(IDCs)
<25% 48%
49%
Holding of
IDCs
Regulated monopolies
Share of private ownership
Target structure planned to emerge in
2008
49 - 100%
Sales companies
Privatised companiesState-controlled companies
Ownership share
RAO UES restructuring
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Prices of fuel and electricity in Russia are currently low
Source: IEA, RAO UESAverage prices Jan - Oct 2005
Hydro 17%
156 TWh
Nuclear16%
150 TWh
Oil 3%
Gas 45%407 TWh
Coal 19% 172 TWh
Russian power generation914 TWh in 2003
• Price liberalisation of gas is important in setting the electricity price in Russia• So far, the implicit price cap set by the tariff in the regulated sector has
prevented free price formation in the free-trade sector of the wholesale market
0
10
20
30
40
50
Russia Germany
Electricity price and typical marginal costs for gas-fired power plant
Gas cost
CO2 cost
Electricity price
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Lenenergo shareholding
Fortum has a long experience of successful co-operation
1950 1960 1970 1980 1990 2000
Nuclear fuel import
Electricity import
Loviisa NPP constructionConstruction of hydro power plants in Kola area
Construction of North-West CHP in St Petersburg
Automation & information systemdeliveries to thermal power plants
Safety improvements for nuclear power plants
Permanent presence in Moscow/St Petersburg
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Fortum's strong foothold in NW Russia today originates from stake in Lenenergo
• Largest utility in northwest Russia• 9 thermal and 6 hydro plants• Power generation
– capacity ~3,240 MW – production ~13.4 TWh/a
• Heat generation – capacity ~13,900 MW – production ~25.2 TWh/a
• Personnel ~12,500 • Fortum's share of the company
about one third
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Hydro power generation Hydro power capacityShare of TGC-1's hydro capacity
Thermal power generation Thermal power capacityHeat sales
Electricity sales
Distribution volumeNumber of customers
Key financials in 2004Net sales Total assetsInterest-bearing debt
Number of employees
Ownership of Kolenergo:Fortum 24.8%, RAO UES 49.2% and others 26.0%
Kolenergo – northwest Russian power company
TWh/aMW
TWh/aMW
TWh/a
TWh/a
TWh/a
MEURMEURMEUR
6.51,59355%
1335
4
11
11200,000
24840415
3,330
Key figures of Kolenergo
Interregional DistributionCompany
InterregionalTransmissionCompany *)
Territorial GeneratingCompany TGC-1
Electricity salescompany
Kola DistributionCompany
Kola BackboneNetworks Company
KolaPower Generation
Companies
ElectricitySale Company
Exchange rate EUR/RUB 25.11.2005*) Owned by Federal Grid Company
Unbundled companieswith the same shareholding
structure as Kolenergo
Companies are planned to be merged with territorial or
interregional companies
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TGC-1 operating as of 1 October 2005
Finland 16,500
Installed capacity MW
Norway 28,300
Sweden 33,600
Denmark 12,700
Territorial Generating Company TGC-1• Production capacity ~ 5,750 MW,
of which hydro 2,874 MW • Third largest territorial generation
company in Russia• Started operation on 1 October 2005
based on a leasing model• Transfer of assets into TGC-1's owner-
ship targeted at the beginning of 2007• Fortum's calculated share ~26% *)
• Fortum has 3 members of 11 in total on TGC-1's Board of Directors
*) Direct owners of TGC-1 are initially Lenenergo 63%, Kolenergo 25%, Karelenergo 12%
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• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material
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• EUR 486 (393) million comparable operating profit from continuing operations, up by 24%
• All segments excluding Markets improved their performance
• From continuing operations
– earnings per share EUR 0.39 (0.28), up by 39%
– net cash from operating activities EUR 303 (62) million
• Agreements to acquire E.ON Finland shares from the city of Espoo and E.ON Nordic
A good start to the year
Comparison: I/2005 financial results
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• 75% increase in Nord Pool system area price to 45.4 EUR/MWh in Q1/2006
• Fortum Power Generation's achieved Nordic power price increased by 17% to 37.1 EUR/MWh in Q1/2006
• Increase in CO2 price to 22-27 EUR/tonne in Q1
Development of prices
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MEUR I/2006 I/2005 2005 LTMPower Generation 293 224 854 923Heat 126 107 253 272Distribution 81 66 244 259Markets 0 7 30 23Other -14 -11 -47 -50Comparable operating profit 486 393 1 334 1 427Non-recurring items 0 6 30 24Other items effecting comparability -14 7 -17 -38OP from continuing operations 472 406 1 347 1 413
Comparable operating profit
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MEUR I/2006 I/2005 2005 LTMSales 1 343 1 133 3 877 4 087
Expenses -871 -727 -2 530 -2 674Operating profit 472 406 1 347 1 413
Share of profit of associates and joint ventures 35 15 55 75Financial expenses, net -15 -35 -135 -115
Profit before taxes 492 386 1 267 1 373Income tax expense -120 -116 -331 -335
Profit for the period from continuing operations 372 270 936 1 038Profit for the period from discontinued operations 0 84 474 390Net profit for the period 372 354 1 410 1 428
Of which minority interest 26 25 52 53
EPS, Total Fortum Group (EUR) 0.39 0.38 1.55 1.56EPS, continuing operations (EUR) 0.39 0.28 1.01 1.12EPS, discontinued operations (EUR) - 0.10 0.54 0.44
Income statement
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MEUR I/2006 I/2005 2005
Operating profit before depreciations, continuing operations 570 509 1 754Non-cash flow items and divesting activities 24 -14 15Financial items and taxes -110 -205 -405
Funds from operations, continuing operations (FFO) 484 290 1 364Change in working capital -181 -228 -93
Net cash from operating activities, continuing operations 303 62 1 271Net cash from operating activities, discontinued operations - 152 133Total cash from operating activities 303 214 1 404Capital expenditures -71 -49 -346Other investing activities -59 4 -52Investing activities, discontinued operations - -137 1 155Cash flow before financing activities 173 32 2 161
Cash flow statement
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Balance sheet
MEUR Mar 31 Dec 312006 2005
Non-current assets 13 106 13 075Current assets 1 595 2 055ASSETS 14 701 15 130
Total equity 6 498 7 411 of which minority interest 231 260Interest-bearing liabilities 4 107 3 946Non-interest bearing liabilities 4 096 3 773EQUITY AND LIABILITIES 14 701 15 130
Equity per share (EUR) 7.11 8.17Net debt, (MEUR) 3 900 3 158
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Nord Pool year forwards
€/MWh Year 06 Year 07 Year 08 Year 09Year 05
2004 2005 2006Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
242628303234363840424446485052 May 3, 2006
Q1
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Hedging of Power Generation's Nordic sales
Fortum has hedged Power Generation's Nordic sales volume at the beginning of April 2006:
4-12 / 2006
Hedge ratio Hedge price
~ 80 % ~ EUR 33 per MWh
Calendar year 2007
~ 55 % ~ EUR 37 per MWh
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• A strong start to the year
• Continued focus on the Nordic and Baltic Rim countries
• Competitive corporate structure, costs and production portfolio
• Strong financial position and cash flow
Fortum well positioned for 2006 and 2007
Fortum has the foundations for good performance
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• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material
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Internationalinvestors 34.4%
Finnish State 51.2%
Other Finnishinvestors 7.2%
Households 5.0% Financial and insuranceinstitutions 2.2%
• Leading power and heat company in Nordic• Founded and listed at the Helsinki Stock Exchange 1998• More than 50,000 shareholders• Among the most traded shares in Helsinki stock exchange
Fortum - a listed company
30 April 2006
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Current Fortum Group financial targets
• ROE >12%• ROCE >12%• Net debt / EBITDA 3.0 - 3.5• Normal CAPEX <depreciation
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Credit ratings
• Moody's long-term rating A2 (stable outlook)• Standard & Poor's long-term rating A- (stable outlook)
"Due to the cash outflows, which in 2006 total €2.23 billion, Fortum’s debt is expected to increase significantly and credit measures are likely to weaken as a
result, thereby markedly reducing rating headroom. Nevertheless, given the company's very strong financial results in 2005 that led to a low adjusted debt-to-total-capital ratio of 33% at year-end, we expect credit metrics to remain in
line with our previously indicated ratio targets."Standard & Poor's
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Funding sources and maturity profile
• Funding and treasury risk management centralised to Group Treasury
• Transparent loan portfolio
• Access to all relevant debt markets
Interest bearing loans at the end of March 2006Average interest rate disclosed at the end of 2005 for the year 2005 was 4%.
2006 2007 2008 2009 2010 2011 2012
Bonds Bank loans Other long-term debt Short-term debt
828
355
580
41
542
81
1,506
Total 4,107 MEUR
33
2013+
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Total equity
MEUR Mar 31 Dec 31 Change2006 2005
Share capital 2 997 2 976 21Share premium 72 70 2Other restricted funds 2 2 0Fair value and other reserves 1) -378 -117 -261Retained earnings 2) 3 574 4 220 -646Minority 231 260 -29
Total equity 6 498 7 411 -913
1) Major part is attributable to fair values of electricity derivatives hedging future cash flows.Effect is calculated net of deferred taxes. Amounts in equity will be recognised in incomestatement when the hedged item e.g., forecasted sale will affect profit and loss.
2) Dividends paid amounted to MEUR 987. Net profit for the period MEUR 346.
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Heat key figures
Nr 1
Heat
DistributionEUR million 2005 2004
Net sales 1,063 1,025Comparable operating profit 253 207
Employees 2,385 2,146Production plants
CHP plants 23heat plants and stations abt 700
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··· ·0.19.5
9.8
1. 2
1.1(3.9**)
0.03
-
-
Fortum's heat and steam sales, TWh, 2005** including Wroclaw and PEC Plock (acq.2005)
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Polish power and heat markets
• Population 38 million• GDP growth around 4.5% in 2004• Total electricity consumption 130-140
TWh/a• Polish generation approx. 150 TWh/a• Number of electricity customers around
15.6 million• 8 distribution companies• Energy sector privatisation ongoing in
generation, district heating and distribution• Size of the heating markets around 165
TWh/a
Source: EIU, Eurelectric/Eurprog; 2004 or 2003 estimates, Fortum
Existing operations of Fortum HeatWrocław Płock
Płock
Operations of Fortum Heat in Poland
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Baltic countries' power and heat markets
• Population 1.3 million (Estonia), 2.3 million (Latvia) and 3.4 million (Lithuania)
• GDP growth 6.0% (Estonia), 5.5% (Latvia), 6.5% (Lithuania)
• Total electricity consumption; Estonia and Latvia 6-7 TWh/a, Lithuania 10 TWh/a
• Total generation; Estonia 9-10 TWh/a, Latvia 4-5 TWh/a, Lithuania 18 TWh/a
• Three larger distribution companies in Estonia, one in Latvia, two in Lithuania
• Privatisation not active in generation or distribution, privatisation of district heating started in 2000
• Size of the heating markets around 30 TWh/a
Source: EIU, Eurelectric/Eurprog; 2004 or 2003 estimates
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Distribution regulation differ country by country
Finland
Maximum allowed rate ofreturn based on actualdefined cost data
Sweden Norway
Maximum annual income limitbased on historical or definedcost data
Regulation authority has supervised 41 areas for 2003 and 55 areas for 2004 due to claimed overpricing. All companies that have received a decision to reimburse customers have appealed to court.
Status
Regulation principle
Allowed return
New model for period 2005 - 2007
New regulatory model is being applied to 2003 and 2004 tariffs
The regulator has proposed a model for the next 5-year period starting in 2007.
Rate of return,ex-post regulation
Yardstick, ex-post regulation, with benchmarking based on hypothetical efficient company
Revenue cap, ex-ante regulation
Actual operation vs.fictious network parametersdefines return
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