Page 28 - EPSI Magazine Issue 8 final 2018.indd

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Legal Basis for Tariff Setting

Under the Electricity Act, the Electricity Regula- • Encourage operators to make efficient use of
tory Authority is the institution with mandate to plant (Assets) and operational efficiency based
determine and set electricity tariffs. on financial benefits and penalties.

• Setting and investigation of tariffs and other • Provide operating companies reasonable return/
charges is one of the major functions of the profit to give confidence to current investors and
Authority under section 10 of the Act. attract new investors.

• Setting of tariffs and terms of supply is gov- • Provide a tariff structure for cost reflective tariff
erned by section 75 of the Electricity Act . for each customer group.

• Tariff structure and terms of supply must be Principles of Tariff Determination
in accordance with principles of tariff calcu-
lation and terms of supply prescribed under Recovery of “all reasonable costs and a reasonable
the Tariff Regulation Code (2003)and the rate of return” for licensed activity
Electricity (Application for permit, license
and tariff review) regulations 2007. a) Revenues adequate to cover reasonable levels of
its operating costs, the recovery of invested capital
• To provide consumers with fair and reasona- and profits and,
ble price structures.
b) Incentives to reduce costs and operate efficiently
• Encourage consumers to make efficient use
of energy based on price signals.

Regulatory Function: Control Knobs

Regulatory Controls

Price Control Quality of Supply Market functioning Other

Setting the Revenue Market Rules/Contract
Requirement Commercial Quality Rules Unbundling

Price/Revenue Adjustment System/Network Rules(Grid
Code)
Continuity/Reliability Cross-boarder
Efficiency Assessment
Market Monitoring
Technical Quality
Tariff Design Security of Supply

Regulation is an alternative to market: >>Rules, regulations, guidelines facilitate fairness, regulatory transparency,
predictability and legitimacy