Until very recently, the distribution tariffs were set according to the cost-plus principle, allowing owners a profit margin of 3% on top of their costs. This encourages them to maximise revenues rather than to invest or reduce losses. The “cost-plus” rate-setting method reduces the incentive for utilities to invest in efficiency improvement. This in turn disrupts the market balance and reduces national competitiveness. This will set tariffs at a share of the asset base.