Tariff for franchises

The tariffs of transmission and distribution companies must generate revenues that correspond to the income thresholds of the companies, taking into account additional unavoidable costs. Changes in tariffs are submitted to the electricity regulatory authority for approval before they come into effect.

The prices for transmission and distribution can be viewed on the Energy Authority's website and more detailed information is available on the websites of the respective licensed companies.

Distribution utilities collect fees according to their tariffs and also handle the collection of transmission fees and equalization charges from general consumers. The equalization charge is paid by all general consumers and is used to subsidize the distribution costs for users located in designated distribution areas.

Two areas are designated as distribution areas for electricity; one is the non-urban areas of the Westfjords, and the other is the rural areas of RARIK outside urban centers. The definition of distribution and urban centers follows the electricity legislation, regulation 1040/2005 on the implementation of electricity laws, and the definition by Statistics Iceland regarding population centers.

The tariffs for transmission and distribution are divided into capacity charges, which are based on peak usage, and energy charges, which are based on the amount of electricity consumed during a specific period. The charges are further divided into export charges, which apply to electricity exported from the system, and import charges, which apply to electricity imported into the system from power stations. There are also connection charges levied for new connections.

The costs of licensed companies are mainly tied to their capacity for transmission and distribution and are therefore relatively fixed in the short and medium term. It is most cost-effective to utilize the system in a manner that minimizes any unused portion of the system's capacity throughout the day. As a result, users with uneven usage patterns pay a proportionally higher capacity charge since the costs of licensed companies are primarily fixed in relation to peak usage. Examples of users with uneven usage patterns are electric vehicle charging stations, while large consumers are examples of users with more consistent usage patterns.

Licensed companies must construct their tariffs in a way that reflects their costs and contributes to efficiency, cost-effectiveness, and fairness. The Electricity Regulatory Authority places great emphasis on analyzing tariffs in light of the above-mentioned objectives and provides recommendations to licensed companies regarding priorities and improvements."