Estonian experience in implementation of incentive type of price regulation

Abstract

Administrative resources of the regulatory body and the number of regulated utilities is an important criteria in selection of price regulation methodology. Estonian experience is based on a large number of relatively small utilities. The price regulation methodology implemented is incentive type of Rate of Return where the important element is the regulatory deterrence, where the company can select whether to apply for new tariff or to rely on the existing one. The administrative burden is minimized in this case. The results of price regulation indicate significant savings on energy losses and stable service tariffs.