Distribution pricing based on yardstick regulation

Transmission and distribution (T&D) pricing has been one of the keystones of the ongoing deregulation and privatization process in the power industry. The electricity market has been established based on the assumption of open access and nondiscriminatory use of the T&D assets. As T&D business remains as a monopoly, it is necessary to provide economic regulation. Many papers have dealt with transmission pricing and certain maturity has been reached in this area, but this is not true in the case of distribution services. This paper will focus on the distribution pricing methods and will suggest one that is currently under development in Brazil. This method is based on incremental costs derived from the aggregated expansion plan of a particular utility, named model utility. This utility was obtained by comparisons among the real distribution companies. The method follows the fundamentals of the yardstick regulation.