Analysis of economic characteristics of a tariff system for thermal energy activities

Generally speaking, the creation of tariff systems for energy activities carried out as regulated or public service obligation is becoming professionally challenging. The Croatian Energy Regulatory Agency (CERA) created the methodology of the tariff system for thermal energy activities and passed this tariff system (without tariff element amounts) in May 2006. The background of the tariff system for thermal energy activities (heat generation, heat distribution and heat supply) including a legislative framework relevant for passing the tariff system, terminology, matrix of the tariff models, tariff elements and amounts of tariff entries are analyzed in this paper. Special attention is paid to the economic characteristics of the tariff system, such as the capital asset pricing model (CAPM), which is chosen among several models of the weighted average of cost of capital (WACC). Using the WACC, the regulatory authorities ensure returns to be equal to the opportunity cost of capital. Furthermore, main formulae and procedures for submitting the proposal for changing the amounts of tariff elements are analyzed as well. (C) 2007 Elsevier Ltd. All rights reserved.