VITALY KOROLEV: BENCHMARKING METHOD WILL MAKE TARIFF-SETTING FOR CONSUMERS MORE TRANSPARENT AND UNDERSTANDABLE

FAS Expert Council on the Housing-and-Utility Sector discussed new principles and methods of tariff regulation

In August 2018, based on the results of the Commission on the Strategy for developing the Fuel-and-Energy Complex and the Environmental Safety, the President of Russia instructed to introduce benchmarking in tariff-setting in the housing-and-utility sector following a FAS proposal.

“It’s not a coincidence that the idea to introduce benchmarks in the housing-and-utility sector emerged. Monitoring showed that tariff differentiation across regions constitutes dozens of times”, said Deputy Head of the competition authority Vitaly Korolev at FAS Expert Council on the housing-and-utility sector.

Deputy Head of FAS pointed out that similar efforts on implementing benchmarking had already been undertaken in the electric power industry setting sales mark-ups for providers of last resort.

“This mechanism has been in place in the electric power industry since 2017. In a number of regions, the sales mark-up has decreased significantly, which has had an impact upon the power costs. A striking example is a considerable price reduction for businessmen in the Kurgan region in July 2018 by 44 kopeks per 1 kW/h. Also, differentiation by regions also decreased. It used to be dozens of times, now the tariff difference is not more than twofold. FAS thinks that during the target period the difference should reduce even more in three years. We expect the same effect in those segments of the housing-and-utility sector where benchmarks will be introduced”, reported Vitaly Korolev.

He also mentioned that the existing regulatory groundwork could be gradually implemented in the pilot regions, where companies and tariff regulators of the subjects of the Russian Federation agree for it.

Another speaker at the Expert Council was Head of FAS Department for Regulating the Housing-and-Utility Sector, Alexei Matuykhin. He talked about an analysis of regional tariff decisions revealing that there are incidents when the same company operates in two regions simultaneously and in comparable conditions, but the tariffs for its services differ by orders.

“Based on the outcome of the meetings with representatives of federal executive bodies, FAS concluded that in the tariff structure it is necessary to separate an operational element, related to the current operations and providing the resource, for example, water or heat, and the investment element, comprising amortization and other measures of an investment programme”, underlined Head of FAS Department for Regulating the Housing-and-Utility Sector.

“We have started devising a relevant guidelines together with the authorities. Our work is built on the principle that benchmarking must be embedded in the housing-and-utility spheres in view of the specifics of every segment. We suggest to discuss the issue in detail in the format of the Working Groups on heating supply, water supply and drainage. The Working Group will meet in mid-February”, informed Alexei Matuykhin.

At the final part of the Meeting of the Expert Council, Deputy Head of FAS Vitaly Korolev thanked the experts for substantive proposals and announced that the next meeting will be in spring 2019, when the intermediary results of its work will be summed up.