On December 6, 2017, at the seminar for National Energy and Utilities Regulatory Commission (NEURC), MDI presented to NEURC staff the results of surveys and recommendations for introducing the benchmarking system (comparative analysis) at NEURC for benchmarking in DH sector and using benchmarking results in regulatory activities. Surveys were conducted and recommendations were developed by MDI in the framework of fulfillment of the tasks under the USAID Municipal Energy Reform in Ukraine Project. The participants of the seminar also discussed organizational, methodological and other issues regarding benchmarking in district heating sector.

Benchmarking (comparative analysis) has the important role in the regulatory activities as utility benchmarking helps the Regulator to assess performance of utility companies and take decisions as to necessary improvements. It is the tool distinctive for its immediate influence on a utility company when improvement is required and for its indirect influence through publication of results of the company's performance.

In Ukraine, utility benchmarking gained even bigger importance in light of NEURC's plans to introduce incentive-based regulation in district heating sector, and in particular, regulation of heat energy transportation by main and local (distribution) networks.

In July 2017, a number of normative documents vital for the implementation of incentive-based formation of tariffs were adopted for facilitating transit to incentive-based tariffs for heat energy transportation by main and local (distribution) networks. The documents were drafted with assistance from MDI in the framework of the implementation of the USAID Project and include: a tariff formation order (NEURC Resolution No. 967 "On approval of the Order for formation of incentive-based tariffs for heat energy transportation by main and local (distribution) heating networks" dated 27.07.2017), a tariff setting procedure (NEURC Resolution No. 964 "On approval of the Procedure for setting incentive-based tariffs for heat energy transportation by main and local (distribution) heating networks" dated 27.07.2017), an order for determining the regulatory base of assets (NEURC Resolution No. 966 "On approval of the Order for determining the regulatory base of assets for subjects of natural monopolies carrying out (or intending to carry out) economic activities on heat energy transportation by main and local (distribution) heating networks" dated 27.07.2017), and a document establishing the regulatory rate of return on the regulatory base of assets (NEURC Resolution No. 965 "On setting the regulatory rate of return on the regulatory base of assets for subjects carrying out (or intending to carry out) economic activities on heat energy transportation by main and local (distribution) heating networks" dated 27.07.2017) were approved.

According to the methodological approaches established in the Order for formation of incentive-based tariffs, benchmarking results will create the information framework for the Regulator's decisions on the parameters, which have the long-term validity period, and specifically, it goes about the tasks to reduce heat energy losses in networks, reduce consumption of electricity used for technological purposes; as well as the task on the targeted indicator on specific size of production personnel who is involved in the technological side of heat energy transportation.

MDI informed seminar participants about the goals, objectives and main stages of the comparative analysis, specifics of necessary information, Key Performance Indicators (KPI) recommended by MDI for HE production, transportation and supply.

KPIs are considered the weightiest indicators which allow assess performance of utility companies against performance of other (similar) utility companies while at the same time tracking dynamics of the progress regarding increasing effectiveness of utility companies' performance.

MDI, under the USAID Project, conducted a survey based on which it was recommended to have 22 KPIs in district heating sector grouped in six groups. MDI also proposed calculation algorithms for KPIs.

MDI presented to NEURC staff the results of clustering of utility companies in heating sector, as well as the results of the comparative analysis of the companies within the clusters formed. As a result of clustering, MDI formed five clusters of companies producing heat energy, six clusters of companies transporting heat energy, and six clusters of companies supplying heat energy.

For clustering and benchmarking, MDI formed initial data array of 30 companies producing heat energy, 39 companies transporting heat energy and 44 companies supplying heat energy during 2014-2016.

During the seminar, MDI discussed with NEURC staff publishing of benchmarking results. The results of the comparative analysis (benchmarking) should be systematized and classified and publicized in order to ensure transparency of the information on performance of utilities and to provide stakeholders with access to the information. The results of benchmarking (reports) is one of the key phases of the comparative analysis and a tool helping the Regulator to be open and transparent to general public.

The seminar "Practical aspects of benchmarking of utility companies in district heating sector" was the last seminar of seven training seminars organized by MDI under for NEURC under the Training Plan under USAID Energy Reform in Ukraine Project in 2017.

Details about USAID Municipal Energy Reform in Ukraine Project