* managerial perspective
Segment revenue is based on a tariff for electricity distribution services, which is approved by the ERO President every year at company request and is regulated.
As a rule thumb, the tariff should allow costs related to the distribution system operator’s on-going activities to be transferred. These are both justified operating costs, depreciation as well as costs related to the necessity to cover grid losses on electricity distribution or the purchase of transmission services from the TSO. At the same time, the tariff reflects the transferred costs in fees such as the RES fee, transition fee or – starting from 2019 – co-generation fee.
The key element shaping the Distribution segment’s result is return on PGE’s invested capital. This is based on the Regulatory Asset Base (“RAB”), which is established on the basis of completed investments and taking into account asset depreciation. The Regulatory Asset Base serves as the basis for calculating return on capital, using weighted average cost of capital, which is published by the ERO President in accordance with a set formula and using as the risk free rate the average yield on 10-year State Treasury bonds with the longest maturity during the 18-month period preceding the tariff application submission, quoted on the Treasury BondSpot market. As part of the tariff process for 2021, the ERO President extended the observation period for the profitability of the 10-year State treasury bonds to 36 months. In addition, return on capital depends on the achievement of individual quality targets set by the ERO President for performance indicators including: interruption time, interruption frequency, connection time and (not yet included) time to provide metering and settlement data.