Distribution access pricing: application of the OFTEL rule to a yardstick competition scheme

Abstract

The paper formulates an access-pricing model applied to electricity distribution, based on the UK Office of Telecommunications (OFTEL) model, originally structured to price telecommunications monopolistic-essential facilities. The aim is to achieve an optimal access price charge, in an environment where a distribution network monopoly serves both regulated and nonregulated customers. The nonregulated market faces competition, so that the competitors must use the network to reach their customers. A usage-based hybrid model is proposed to couple with a tariff scheme for regulated customers that uses yardstick competition. A way to set appropriated opportunity costs by the use of the OFTEL model is introduced. Finally, the paper focuses on properly recognizing both regulated distribution and competitive supply costs. The scheme is assessed within the Chilean regulatory scheme, proposing a way to establish marginal and fixed distribution costs for distribution companies.