TARIFF-SETTING MODELS ARE COMPLEX CONSTRUCTS THAT REQUIRE FINE TUNING

Deputy Head of FAS Vitaly Korolev discussed the issue at the National Hands-On Workshop on “Evolution of tariff regulation in 2020: a step to the future" on 4 March in Sochi

He reminded that in accord with the FAS-drafted amendments to the Law on the electric power industry, introduced in 2019¹, since August 2019 regulators cannot set tariffs higher than the maximum or lower than the minimum levels on their own, without FAS approvals. Particularly, if such changes are due to the size of investments programmes of the entities operating in the electric power industry.

Now regulators must apply to the antimonopoly body and submit documents, explaining why tariffs should be increased. The deadline is 20 calendar days prior to the start of a new regulated period.

According to Vitaly Korolev, from the beginning of 2020 FAS has approved 64 % applications submitted by regions on setting tariffs higher (lower) that the maximum thresholds.

"It is a completely new level of quality in terms of tariff-setting, because approving applications FAS studies in detail the reasons and the need to go beyond the set ceiling levels", explained Deputy Head of FAS.

Another main principle of improving the tariff policy, in the opinion of Vitaly Korolev, is use of costs benchmarking to estimate sales mark-ups of providers of last resort. This method brings in transparency, excludes subjectivity and tariff discrimination from estimates, and nearly halves the spread in differentiation of the level of sales mark-ups across the regions of Russia.

"Further on, we plan to implement benchmarking also in approving the tariffs for electric power transmission", pointed out Deputy Head of FAS.

Talking about long-term tariffs in the electric power industry, he explained that "setting regulated tariffs for five years with long-term indexing of the necessary gross revenue will help determine the base level of operational costs, estimate their efficiency index and energy saving and energy efficiency indicators. This approach will allow territorial network companies to plan investments, expand repair programmes and increase transparency and tariff forecastability for consumers".

"For instance, one can state with full confidence that long-term indexation of the necessary gross revenue for wholesale supplies in the Far East regions ahs become a reality. In the near future, long tariffs will be set for them for several years right away", emphasized the speakers.

Executing № 300-FZ Federal Law, territorial network organizations and regulators are able to conclude regulatory agreements, subject to mandatory approval by FAS.

"Such agreements with subjects of the Russian Federation will allow companies to get predictable long-term tariffs and stable investment conditions. The agreements will register obligations of network companies and their liabilities, which will facilitate reliable and high-quality electric power supple and fulfillment of investment programmes ", explained Vitaly Korolev.

A mandatory condition for regulatory agreements is that network companies should have investment programmes. The decisions to sign such documents should be voluntary from both sides.

To finalize the panel discussion, Deputy Head of FAS mentioned that the Antimonopoly Service is going make significant changes in its work: further digitalization and a full refusal from hard-copy document workflow between FAS, regional tariff regulators and companies, as well as improving and unifying all forms of collaboration in the course of tariff-setting.

Summing up the session, Vitaly Korolev wished regulators further success in their hard work towards searching social-and-economic balance in tariff decision-making.

Reference:

¹ № 300-FZ Federal Law “On amendments to the Federal Law “On the electric power industry” of 02.08.2019.