Calculation Methodology to Determine Electricity Distribution Tariffs Using an Approach Based on Cost Causation

Kimmo Lummi (), Antti Mutanen and Pertti Järventausta
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Kimmo Lummi: Unit of Electrical Engineering, Faculty of Information Technology and Communication Sciences, Tampere University, Korkeakoulunkatu 7, FI-33720 Tampere, Finland
Antti Mutanen: Unit of Electrical Engineering, Faculty of Information Technology and Communication Sciences, Tampere University, Korkeakoulunkatu 7, FI-33720 Tampere, Finland
Pertti Järventausta: Unit of Electrical Engineering, Faculty of Information Technology and Communication Sciences, Tampere University, Korkeakoulunkatu 7, FI-33720 Tampere, Finland

Energies, 2024, vol. 17, issue 13, 1-25

Abstract: The cost reflectivity of electricity distribution network tariffs has been debated in several countries, and various ways to enhance it have been investigated in recent years. However, the recent academic literature regarding the approach based on cost causation has a clear gap because no case studies show how distribution network tariffs can be determined in practice for large customer groups. This article offers a calculation methodology to determine distribution network tariffs based on cost causation along with a case study where unit prices are determined for the tariff structures still widely used today using the data for two separate network areas being operated by two Finnish distribution system operators (DSOs) in an unbundled electricity market environment. The results of the case study show that the total differences between the target and the realized turnovers in both investigated networks are smaller than 1%, which means almost a full cost recovery. In addition to traditional tariff structures, the proposed calculation methodology can also be modified to design and determine other pricing schemes. The need for systematic calculation processes is growing to improve the cost reflectivity of present tariffs and adapt to the needs of the evolving operating environment, novel tariff structures, and new emerging customer groups.

Keywords: case study; cost allocation; distribution network business; distribution pricing; network tariff (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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