Reviews the operation and maintenance costs of the utility to assess its efficiency and optimal costs of operation. The analysis and benchmarking of this activity can be relevant to the determination of the electricity tariffs.
Utilities need to provide their services in the most efficient manner possible, as their costs to operate are considered when determining the prices that customers are required to pay. In general, electricity utilities operate in conditions of full or partial natural monopolies -- over a period - as a single provider of service within a geographic location, and which is subject to a regulatory framework. For these sectors, the challenge is to determine what would be the optimal cost for their operation, as there is a tradeoff between the search for lower tariffs and a better quality in the supply of electricity, since greater investments in OPEX (operating expenses) and CAPEX (capital expenditure) will contribute to better service, however they may have an impact on the tariff increase.
Most of the regulations indicate that the best way is to determine limits or reference costs for the operations of electricity utilities, and thus compel them to look for ways to be more efficient and offer services at a lower cost. This has been an effective means of controlling the fair value of electricity tariffs, where utilities have to adapt and constantly be looking for efficiencies.