Tariff Regulation Activities

• Regulated Activities: Tariff regulation applies to:
• Generation and trading (with licenses as required).
• Transmission, distribution, supply, and system operation (with licenses as required).
• Electricity distribution franchising or other activities as determined by the Commission.

Tariff Methodologies

• Principles:
• Allow efficient licensees to recover full business costs, including a reasonable return.
• Provide incentives for technical and economic efficiency and quality improvement.
• Signal consumers about the cost impact of their consumption.
• Avoid undue discrimination between consumer categories.
• Phase out or reduce cross subsidies over time.
• Promote co-generation and renewable energy sources.

Subsidies and Pricing

• Subsidy Consideration: Tariff methodologies take into account subsidies from the Power Consumer Assistance Fund or other sources.
• Willing-Buyer, Willing-Seller Arrangements: The Commission can approve premium service contracts at different tariffs.
• Differentiation in Tariffs: Tariffs may be differentiated based on consumption, time periods, load factors, voltage levels, location, and other cost-affecting criteria. Lifeline tariffs may be allowed for certain consumers.

Approval and Consultation Process

• Notice and Representation: Prior to approving a tariff methodology, the Commission must publish notices in the Federal Government Gazette and widely circulated newspapers, allowing time for objections or representations.
• Consideration of Inputs: The Commission must consider representations from various stakeholders and obtain expert advice if necessary.
• Implementation and Changes: The Commission fixes the operation date of the tariff methodology and follows a similar process for changing methodologies.

Compliance and Penalties

• Availability of Tariff Methodology: Licensees must keep and provide a current copy of the applicable tariff methodology for public inspection.
• Penalties: Fines or penalties levied against a licensee cannot be passed on to customers. Violations result in fines or imprisonment.

Subsidies Implementation

• Federal or State Subsidies: Subsidies by the government must be implemented through the Power Consumer Assistance Fund to avoid speculative revenues.
• Cross-Subsidies: The Commission aims to gradually reduce and eventually eliminate cross-subsidies.

NOTE
Cross-subsidies occur when the cost of providing a service to one group of consumers is partially covered by higher charges on another group. Essentially,
it's a way to balance costs and revenues within a market to make sure everyone can afford the service. In the context of electricity tariffs:

• Higher-Paying Consumers: This group is charged more than the actual cost of service. Their payments help subsidize the cost for others.
• Subsidized Consumers: This group pays less than the actual cost of service, benefiting from the higher charges paid by the first group.

Example:
Imagine a rural area where it's more expensive to supply electricity due to the infrastructure needed. The power company might charge urban consumers a bit more to cover the additional costs of supplying electricity to the rural area. The ultimate aim is to gradually reduce and eliminate these cross-subsidies, making pricing fair and reflective of actual costs without one group unfairly bearing the burden. This ensures a fairer, more transparent pricing structure while still allowing all consumers access to essential services.