Incentive Tariff Regulation of Utilities: Theoretical Basis and Practical Application

• Main Authors: Onyschenko Volodymyr O., Berezhna Alla Yu., Filonych Оlena М.
• Format: Article
• Language: English
• Published: PH "INZHEK" 2021-03-01
• Series: Problemi Ekonomiki
• Subjects: incentive tariff regulation; rate of return on invested capital; regulatory asset base; tariff for centralized water consumption services; tariff for electricity distribution
• Online Access: https://www.problecon.com/export_pdf/problems-of-economy-2021-1_0-pages-28_44.pdf

The article aims at studying the manifestation features of the system of incentive tariff regulation of utilities given the need to attract investment to modernize the utilities infrastructure in cities in the field of electricity and centralized water consumption, indicating its risks and benefits. The following methods were used: decomposition, comparative analysis (when considering the methods of tariff calculation based on the "cost plus" principle and on the "rate of return on invested capital and regulatory asset base"), scientific abstraction, systemic approach, construction of scientific hypotheses (when studying the algorithm for the calculation and dynamics of the incentive tariff for electricity distribution services and centralized water consumption). A change in the electricity cost for end consumers under the transition to an incentive tariff for electricity distribution has been modelled. The dynamics of tariffs changes in centralized water consumption services is studied based on the concept of the rate of return on invested capital and regulatory asset base (RAB-methodology), and the number of investment resources that under such conditions can be directed to modernize urban water infrastructure is forecasted. The expediency of different approaches to determining the rate of return on capital (single and differentiated rate) given the legal status of assets is proved. The RAB tariff regulation concept is applied to services in the field of centralized water consumption with the identification of risks and benefits for consumers, service providers and potential investors in the modernization of the industry infrastructure. Given the energy intensity of the services, the impact of the full introduction of the electricity market on the tariffs dynamics and on the need for effective social tension preventers has been identified. The research results prove the necessity and validity of applying incentive tariff regulation in the field of electricity and water consumption, provided that the interests of consumers and service providers are balanced; and allow authorized persons to design a number of appropriate measures to ensure that the service provider invests the established amount of finance in the first regulatory period, given the uncertainty of this issue in the regulations.