VITALY KOROLEV: TARIFF REGULATION IS GOING TO TAKE A STEP TO THE DIGITALIZATION ERA

FAS is developing software that will automatically analyze tariff-setting errors of regional authorities

Following the session on “Developing the grid complex of the subjects of the Russian Federation in the epoch of global technological changes” at Russian Investment Forum in Sochi, Deputy Head of FAS Vitaly Korolev discussed in detail some aspects of improving tariff regulation.

He pointed out: “I’d like to remind that based on the outcome of the Commission on the Strategy for Developing the Fuel-and-Energy Complex and Environmental Safety, the President of the Russian Federation outlined the principles of improving the tariff policy: introducing the “benchmark” principle of setting tariff, long-term tariff setting (5-10 years), a transition to regulatory agreements and limiting possibilities of tariff regulators to make decisions on setting tariffs higher than the ceiling levels without FAS consent”.

Talking about benchmarks, Deputy Head of the competition authority pointed out:

“FAS firmly believes that benchmarking is exactly the approach that facilitates fair and transparent regulation, and increases efficiency and reduces corruption, particularly, eliminating the factors that cause corruption”.

This year, the foundation is already formed to introduce benchmarks in the grid complex. From 2020 pilot projects will be launched and from 2021 – introduced in all regions of Russia.

“In our opinion, implementing benchmarks will reduce differentiation of electric power transmission tariffs, which is currently up to five times, and will make them clearer for consumers”, emphasized Vitaly Korolev.

Another important principle is continuity. The Antimonopoly Service thinks that tariff must be set for 5-10 years under the inflation minus 0.1% principle.

“Successful long-term regulation requires formation of such tariff base that will contain only economically justified expenses on the basis of benchmark costs. We are now actively developing this layer of legislation”, said Deputy Head of FAS.

“Continuity is associated with regulatory agreements. Their performance mechanism works as following: if a regulating agreement is not concluded, the tariffs for the company must be determined through cost benchmarking. If a tariff contract is concluded, the parties undertake obligations: companies – obligations to develop investments, regional authorities – set long-term tariffs”, underlined Vitaly Korolev.

Deputy Head of the competition authority also raised the issue of setting tariffs in the regions.

“In 2018, 10 regions used the right to exceed the ceiling levels, in 2017 - 15 regions. We must counter the trend and adopt a relevant law as soon as possible, which restricts ability of the regions to exceed the ceiling levels set at the federal level. FAS has already drafted the document. The Government Commission on Law-Making approved it, and we expect that in the near future it will be considered by the Government”, said Vitaly Korolev.

A special block is his speech focused in digitalization.

“The electric power industry has a huge potential for implementing digital processes and tariff regulation is not exclusion”, continued Vitaly Korolev.  “Currently, universal electronic template-tables that regional regulators will fill in for each company. They will contain all digital parameters of such tariff decisions. The templates will be analyzed automatically to search errors, potential violations or considerable deviations at the stage of making tariff decisions.”

The result will look as “traffic light”. The red light will mean an exposed blunder, yellow – considerable deviation from the parameter that requires mandatory justification, green – an allowed value in a tariff decision.

“The federal tariff “traffic light” will give a clear signal to regional regulator whether their decisions comply with the law. Thus, artificial intelligence will be implemented in tariff regulation”, stressed Vitaly Korolev.

Finally, he outlined the Action Plan for 2019. In his opinion, at the first stage pilot projects will be launched in 3-5 subjects of the Russian Federation for introducing the benchmarking principle in the grid complex. Having analyzed the system work, the pilot regions will make the final decision on implementing a similar software product in other regulatory fields, and on the need to make amendments to normative legal acts designed to change the tariff decision-making procedure.

“Further on, the accumulated experience can be extrapolated to other fields of regulation, for instance, heat supply, water supply and water drainage”, summed up Vitaly Korolev.