Housing utility rates are going up but the quality of service is not getting any better

29 august 2016 | OTR

Analytical Center expert Dmitry Khomchenko talked about whether housing utility rates should be pegged to the quality of service in an interview for OTR.

Dmitry Khomchenko
Dmitry Khomchenko
Department for Sectors of Economy

“For the first time we have a national regulator ordering that consumers be put at the center of rate regulation,” Mr. Khomchenko said commenting on the FAS’s initiative. “After all the reason we regulate utility rates is not to ensure that utility companies turn a profit to allow them to renovate the infrastructure, replace pipes, develop the heating business but to offer quality services to customers.” And customers in this context are not just individuals but also businesses that buy thermal energy, water, electricity for their production purposes. “The goal is to overhaul the rate regulation system in such a way as to put the consumer at the center of it. And we are seeing this objective being formulated at the federal level in no uncertain terms for the first time,” the expert stressed.

Mr. Khomchenko noted the limited maximum indexes that define the maximum total utility bill that an individual can get. “We have got 5 utility services: water supply, sewage removal, heating, electricity, natural gas, and recently we have also got solid waste removal. And when we look at the numbers of a utility bill we have to understand that what we are seeing are the maximum indexes set for specific Russian regions and specific municipalities,” Mr. Khomchenko said. In 2016, the total utility bill paid by individuals went up by 4%. By amending the law, the FAS wants to obligate Russian provinces, local government authorities and regulated companies to report on the measures that were put in place after the rates were raised and on the improvements in the customer service that the increased rates resulted in. “If consumers are getting any benefits in the form of better and more reliable service, then there are grounds for the increase in rates and the utility companies may proceed as planned,” Mr. Khomchenko believes. “However, if increased rates do not translate into real benefits for the consumer, the maximum rate index can be limited.”

The expert also noted that different approaches should be used when dealing with utility companies that sell services to end consumers as opposed to companies that produce the primary resources. “If people are complaining about water supply interruptions, the rates increase, but there are still problems with water supply then there are no grounds for the higher rates. However, if a utility company says they are going to increase their rates in order to improve quality and reliability, then they should be able to do that,” Mr. Khomchenko explained.

The expert believes the main problem is that today utility rates are going up but the quality of service is not improving. As a result, we are caught in a vicious circle: low rates mean there is no money for improvement, the quality deteriorates and the people are unhappy. And this situation recurs year in and year out, keeping the industry from developing. There are also problems with spending even the limited funds that the industry does get: they are being spent suboptimally, Mr. Khomchenko believes.

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