Economic Regulation Design for the Electricity Distribution Companies of Iran

In addition to the necessity of liberalizing the price of the various sectors of electricity, the regulation of sectors that still maintain their own monopoly structure is mandatory. In order to improve the efficiency of these sectors and encourage their cost reduction, incentive-based regulatory approaches are used which rely on performance evaluation. Due to the monopolistic structure of Iran's electricity distribution companies, this study is looking to provide a design for the economic regulation of these companies. Regarding the limitations of regulation in developing countries like Iran, orders of the regulation process, the shortages of each method of regulation, and characteristics of regulatory bodies in Iran, revenue cap regulation method has been chosen to as the best method for the regulation of electricity distribution companies of Iran. Also, among the different approaches of revenue cap method, building blocks approach is identified as the suitable way and offered for the period of 2016-2021. Considering that the incentive part of this approach is on operational costs, which contain the huge part of total costs of electricity distribution companies, the efficient operational costs are calculated for 2016, which could be extended for 2017-2021 using the designed approach. JEL Classification: L43, L51, L94. Keywords: Economic Regulation, Revenue Cap Method, Building Blocks Approach, Electricity Distribution Companies, Iran.