Major Electricity Customer Pricing Options: The Case of Saudi Arabia

31 January 2008
By Dr. Hethie Parmesano with Anees S. Azzouni and Saud A. Al-Rashed

Designing pricing principles and specific tariffs for large customers in Saudi Arabia is a daunting task, given the transitional nature of the Saudi market, the numerous objectives, and the variety of tariffs required. In this article from The Electricity Journal, NERA Special Consultant Dr. Hethie Parmesano and co-authors Anees S. Azzouni, President of A.S. Azzouni Energy Consultants of Al-Khobar, Saudi Arabia, and Saud A. Al-Rashed, Executive Director for the Commercial Business Sector, Transmission, at Saudi Electricity Company in Riyadh, Saudi Arabia focus on just one aspect of the task: choice of an appropriate cost basis for pricing. The authors argue that short-run marginal costs are the appropriate basis for most tariffs involving large customers, and should mimic the market prices that will emerge as wholesale -- and eventually retail -- competition is introduced. They should be time-differentiated seasonally and diurnally and be forecast out for the period the tariffs or contract arrangements are likely to be in effect.