tHE REGULATION MODEL WORKED WELL AS A WHOLE
The regulatory model has been frequently appearing in public debates and news recently. Despite the criticism, it is worth remembering the regulation has worked well as a whole and it has had positive effects.
The aim of the regulatory model has been to create in the monopoly business a competitive environment, where it is encouraged to operate efficiently and with high quality through various incentives. Thanks to the investment incentive, most DSOs (Distribution System Operators) have made investments at lower unit prices. Considerable progress has been made on operational reliability issues. Outage costs have decreased, and operating costs have remained at the same level, although network lengths and customer numbers have increased.
Changes to the Regulatory Model and the Electricity Market Act
The deadline for improving operational reliability will be postponed from 2028 to 2036, which will divide investment pressures over several years. The proposed amendments to the Electricity Market Act will enable the Energy Authority to change, for example, unit prices during the regulation period. This would affect the calculation of a reasonable return. In addition, it is likely that changes will be made to the reasonable return calculation parameters, which will reduce the reasonable return.
During the regulation period which began in 2016, the rules of the game have been relatively stable. However, there is now a lot of pressure to modify the model – and on a fast schedule – at which point this stability suffers. The situation thus indicates that even if the rules are written in the law for the next 8 years, the rules may also have to be changed during the current period.
Future success factors for companies
In the big picture, the business environment will not change but its details will. In addition, DSOs will have to do more long-term planning. The success factors of the companies will stay the same as before: the basic features of the regulatory model encourage and partly force continuous improvement – whether it is investments, operations, or customer service. Network development strategies will need to be compared and updated so that they can be justified in more detail to the authorities.
Enerity™ in Assisting Distrobution system operators
Enerity™ provides good tools for development plans and for reviewing and comparing different scenarios for DSOs. The solution provides a lot of accurate information, in addition, the impact of alternative development plans and price changes can be examined in relation to the business, different customer groups or individual customers. In the future, price changes will require even more advanced calculation and review so that there will be no surprises in pricing. Customers need to be able to tell how prices are evolving, how to prepare for change, and how customers themselves can influence the various components of pricing.