Modelling a household tariff for reducing sectoral cross-subsidies in the Russian power market
Cross-subsidy in electric power industry distorts normal pricing without achieving the goals of fair andequitable access to electricity for all and leads to wasteful electricity consumption. The paper focuses onthe analysis of cross-subsidy between the residential and non-residential (industry) electricity con-sumers in Russia and the establishment of economically and socially optimal prices. First, benefits anddeficiencies of various research approaches to tariff setting in the industry are outlined. Second, thereview of ultimate electricity prices in over 50 countries allowed identifying cases for tariff policyanalysis and comparison. Third, recommended electricity tariffs for the industrial and household con-sumers (well-off and lower income) were calculated for 10 Russia’s regions. The results for thefirst timesuggest no price increase if the consumption is within the block tariff, challenging the dominant pre-mises that the household tariff has to grow for the entire population. Thesefindings allow unblockingfurther policy and public discussion of the issue, as they offer solutions for cross-subsidy elimination,while guaranteeing the affordable electricity for all. Lowering inefficient expenditures of retail energycompanies may allow further electricity price reduction. Importantly, tariffs and the social consumptionnorm should be tailored for each of Russia’s 85 regions.