Under section 26 of the Electricity Supply Act 1990 [Act 447], ST may determine tariffs and charges to be levied by a licensee, subject to approval by the Minister.

Electricity tariff review and determination in Peninsular Malaysia and Labuan are currently carried out under the IBR framework.

This framework provides a structured and transparent approach to tariff setting, with built-in incentives to improve the efficiency of licensees (regulated entities) while ensuring greater transparency for consumers.

Key features of the IBR framework are:

• Use of prudent and efficient costs in tariff determination;
• A structured tariff regulatory process, where:
  • The Regulatory Period is fixed, typically at 3 years;
  • Regulatory accounts and reporting mechanism are established;
• Separation of accounts of regulated entities;
• Determination of fair and reasonable return to regulated entities;
• Automatic Fuel Adjustment (AFA) mechanism to cover uncontrollable costs arising from differences between the forecasted and actual generation costs;
• Performance targets set by the regulator, with an incentive/penalty mechanism; and
• Efficiency sharing between regulated entities and consumers in the next tariff review.

Building blocks formulae to establish revenue requirements of regulated entities: