You are conducting a price review for a new vertically integrated electricity company. The following issues arise: 1. The plant service is $430 million. The company had projected $410 million, but says that political unrest resulted in damage during construction. 2. Maintenance expenses include $ 1 million transactions with the Energy Minister’s business, which provides agricultural supplies. The invoices do not specify what was purchased. 3. Management bonuses are being given for increasing profits. 4. Salaries and wages include $3 million paid to union pension fund to agree to a wage freeze. 5. Other Operating Expenses include $3 million sponsorship of a trade show held by the Infrastructure Ministry.

OVERVIEW Your case study team solves a problem in a rate of return regulation setting. The problem requires you to set priorities in a price review.

STAFF COST

You are a new agency with only three staff who can work on these issues concurrently.

The staff requirement for each issue is

Issues Number of staff required

Cost Overrun 2

Energy Minister Transaction 2

Management Bonuses 1

Payment to Union pension fund 1

Trade fair sponsorship 1

THE DECISION

•If you reject any issue without investigation, the operator will appeal to the ministry and claim that you did not even look at the substantial evidence that it provided.

•If you accept any proposal without investigation the media is watching..

WHAT YOU NEED TO DO

•Decide how to use your staff resources to investigate claims.

•Decide whether to accept or reject any issue that you do not investigate.