Application of Benchmarking in Electric Power Distribution Tariff-Setting

Abstract

The electric power distribution is an important constituent of the electric power industry. Being a natural monopoly it is regulated by the Government through tariff-setting, the main principle of which is defining the Total Required Revenue of the Distribution Network Operators. The paper develops a new approach to benchmarking the Total Required Revenues based on a system of indicators reflecting the efficiency of the organization's operation and the environment. Application of these indicators allows to decrease information asymmetry between Regulators and Distribution Network Operators, reducing the number of calculations necessary to approve the expenses of distribution organizations and create incentives for reduction of costs, as well as increase reliability and quality of electricity supply.