Electrokit | IADB

Regulatory framework Financial incentives

Financial incentives

Distributors may receive a positive, or  negative, incentive that adds, or subtracts, to their income depending on service performance. For example, performing abov e the required standard may allow for an increase in the distributor’s remuneration. I ncentives can be applied through the correct definition of quality indicators and performance standards, and the ir proper calibration ( i.e., positive and negative incentives must be  aligned with the economic impact an increase or decrease in quality may represent).

Moreover, i ncentives may be determined to apply and be monitored according to the average performance of a quality indicator (average performance of SAIDI, SAIFI, etc.), depending on the performance of individual quality levels (quality of the worst-served customer), or both. For example, if a distributor is making progress in its average quality of service performance, it can be subject to receive a higher income, but if at the same time the worst-served customers have not experienced an improvement in service quality, the distributor must pay an economic compensation to the worst-served customers (i.e. , by charging a lower energy tariff until service quality is improved for this group of customers).

Considering that electricity supply quality may be highly dependent on external factors (i.e. , weather conditions or natural events in a particular year affected grid performance), upper and lower performance standards thresholds should be considered. In this way, distributors can operate within acceptable boundaries within which no positive or negative financial incentives are triggered.