Income for electricity suppliers

The National Regulatory Authority determines permissible revenues for licensed companies, known as revenue caps. Revenue caps represent the total income that licensed companies are allowed to have, taking into account additional unavoidable costs. The revenues must be sufficient to cover cost-adjusted operating expenses, depreciation, and a return on fixed assets.

The revenue cap establish benchmarking expenditures every five years, known as the setting of revenue caps. The objective of setting benchmarking expenditures is to achieve efficiency and effectiveness in the operation of licensed companies. Each year, a reconciliation for the preceding year takes place, where the accounting of licensed companies is compared to the established revenue caps. The accounting for revenue caps follows electricity legislation but is largely similar to the financial statements of licensed companies.

Landsnet divides its revenue thresholds into two categories: transmission to distribution utilities in Icelandic krona and transmission to large consumers, which is denominated in US dollars. A large consumer is a user that consumes at least 80 GWh at a single location within three years. Other users are referred to as general consumers.

Two distribution utilities divide their revenue caps into urban and rural areas, while the other three have common revenue caps for all users in their distribution areas.

When revenue caps are divided into general consumers and large consumers or into urban and rural areas, the tariff structures of the companies also adhere to these divisions. Thus, Landsnet has two tariff structures, and separate tariff structures exist for the regions served by RARIK and Orkubú Vestfjarða.

The division of revenue caps requires analysis of shared costs and investments allocated between the revenue caps. The Energy Regulatory Authority oversees this analysis, along with all data and calculations related to the establishment and reconciliation of revenue caps and tariff decisions.

The legal basis for revenue caps is in accordance with Articles 12 and 17 of Act No. 65/2003 on electricity, with subsequent amendments, Regulation No. 1040/2005 on the implementation of electricity laws, with subsequent amendments, and Regulation No. 192/2016 with subsequent amendments on the assessment of the cost of capital as a reference for permissible return.