Performance based regulation - a new way to regulate the distribution of electricity in Sweden

In the absence of a competitive pricing mechanism for the electricity transportation business, the Regulator has to decide a price for transportation services that both gives a profit large enough to create incentives to re-investment, and invest in new lines, and avoid that market power is abused. The challenges when creating the sufficient regulation are to: Find a theoretical base for the price regulation that gives incentives for efficient network companies, high quality services and reasonable tariffs for the customers. Find a practical method to calculate the price or income level for each individual network company (there are more than 200 companies in Sweden). Convince the consumers, the network companies and the judicial system of the justification of the methods used. In Sweden, this has to be done with a staff of approximately 0,05 staff/network company. So far, Sweden has applied a price regulation that can be characterised as a cost based light handed regulation. The result of this method is questionable. The new approach will be more precise and normative in guiding the companies. The regulation will be pro-active rather than reactive. The theoretical base for the price regulation is to copy a competitive pricing regime as much as possible: The companies shall all be 'price takers', The only way the companies can influence the price level is through increased quality of the services provided. The price level reflects the cost of investing in and operating a new network, built with the present technology and cost level. The tools used to calculate the price level, or rather income level, for each network company is called the 'Network Performance Assessment Model', PAM. By using GIS technology and a computer model that simulates the distribution network these calculations can be made quite easily by the authority using a limited set of data from the utilities. Once the model is set up and calibrated, it becomes a very cost efficient and transparent tool for the Regulator. The key data needed are the location of the customers, the customers annual electricity purchase, the location of the feeding points and the number of outages and times of the outages. To complement the PAM, the Regulator will also stipulate a number of conduct codes.