IEEE Power & Energy Magazine - July/August 2015 - 78

✔ Next, during revenue reconciliation,
Regulatory Revenue
Assessment

Pricing Structure

O&M Costs

Cost Drivers

Base Rate Returns

Cost Allocation Method

Assets Depreciation

Connection Charges
UoS Charges
Feed-in-Tariff for DG
Time Period Tariff
Revenue Reconciliation

figure 1. Distribution network pricing process.

their designated distribution areas. In this process, the regulatory agency typically calculates the total required revenue on
the basis of operation and maintenance (O&M) expenditure
(OPEX) and capital expenditure (CAPEX), then combines
these together to calculate a total expenditure (TOTEX).
Regulated revenue is designed to cover efficient O&M costs,
base rate returns, depreciation of assets, and other costs.
The pricing structure represents the process that DNOs use
to collect money from network users to match the regulatory
allowed revenue. In other words, the pricing structure dictates how DNOs allocate the allowed revenue among network
users: suppliers, large industrial customers, and distributed
generators (DGs). This generally involves a two-step process.
✔ First, network charges are set from the charging methodology approved or used by the industry regulator, such as
Office of Gas and Electricity Markets in the United Kingdom and Agência Nacional de Energia Elétrica in Brazil.

charges are converted into tariffs,
scaling tariffs up or down such that
revenue recovery exactly matches
regulatory revenue.
Figure 1 summarizes the distribution network pricing process and illustrates its key
aspects.

The Survey
A survey was conducted to compare distribution pricing structures among seven countries
(see Figure 2). Survey questions relate to key
aspects of each country's pricing mechanisms
and incentives for using distribution systems.

What Are the Voltage Levels
of the Distribution Network?
The voltage levels in kilovolts of the distribution networks differ across the seven countries, and even within countries in
Europe and Latin America (see Table 1 and Figures 3 and 4).

Is There Any Locational Pricing Structure
in the Distribution Network?
Until very recently (2007), there were no locational pricing structures within distribution networks anywhere in
the world. There were, however, different sophistications
for nonlocational UoS charges.
For the United Kingdom and Brazil, tariffs differ at different voltage levels within a distribution network. For Chile,
tariffs differ on the basis of density and asset type. For
countries like Germany, tariffs do not differ between voltages within the same network, but they do differ between

figure 2. The seven countries participating in the survey: Brazil, Chile, China, Germany, India, Spain, and the United
Kingdom.
78

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july/august 2015



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IEEE Power & Energy Magazine - July/August 2015 - Cover3
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