Efficient pricing on distribution network tariffs

This paper presents and discusses a methodology for the calculation of efficient prices on distribution network tariffs. Tariffs should reflect costs and assure the absence of cross subsidies between clients. Tariffs based on marginal cost send to consumers the right price signals, promoting economic efficiency in electricity use and in the use of its associated resources. The methodology presented is adopted in the Portuguese Tariff Code for electricity by the Portuguese Energy Services Regulatory Authority (ERSE). The work presented in this article reflects the experience acquired by ERSE during the preparation, discussion and implementation of this efficient pricing system.