REGULATORY ACCOUNTING FOR UTILITY REGULATIONS
Regulatory accounting for utility regulations is an accounting system that demonstrates compliances with transparency, objectivity and non-discrimination obligations. Other compliances include anticompetitive behavior and systematic of disaggregation of costs, revenue, asset and liabilities against defined regulatory Markets and Services. These compliances enable National Regulatory Authorities (NRAs) to regulate diligently and prudently utilities that promotes effective competition and economic efficiency of the country. The compliances also enable Revenue Authorities to collect correctly corporate taxes, because the regulatory accounting system discloses cost information. The cost information is used to calculate the corporate taxes from the net profit. The net profit is revenue less the costs.
Until the late 1980s, most of the governments around the world owned and operated the utilities on monopoly basis such as telecommunications, broadcasting, electricity, gas and water. The state owned monopoly utilities used to prepare and submit the state government audited and consolidated accounts for their business operations. Normally, the audited and consolidated accounts are not transparent and objective; they do not disaggregate the costs, revenues, assets and liabilities against defined regulatory Markets and Services. However, the audited and consolidated accounts worked well during the monopoly era because there was no competition, and the state owned utilities were funded fully by the state government.
In mid-1995, reform of the utilities took place in most of the countries around the world. This reform liberalized markets of the utilities and brought them up to competition. The reform brought more new entrants and entered into the markets. The new entrants increased competition and would like to know the costs of accessing the existing utilities. Knowing the costs for accessing the existing utilities became a big problem due to lack of the regulatory accounting system. The regulatory accounting system for the utility regulations solves the problem of knowing the costs for accessing the existing utilities by the new entrants. However, the liberalized and competitive utilities such as Mobile Network Operators (MNOs) are still preparing and submitting the NRAs and state governments the legacy audited and consolidated accounts, which are subjective. As a result the governments and NRAs continue collecting incorrect amount of the corporate taxes and regulatory dues respectively.