What is IBR

The Incentive-based Regulation (IBR) was introduced early 2014 in Malaysia for the electricity subsector as part of the modernisation of the electricity supply industry. This allows a structured, transparent and informed way of tariff setting taking into cognisance huge requirement for capital expenditure (CAPEX) and operational expenditure (OPEX) by the utilities (regulated entities).

IBR ensures the regulated entities to continuously enhance their efficiencies and increase transparency in providing electricity supply to customers in full compliance of the projected expenditures. In addition, Energy Commission (ST) continues to audit and review past performances as well as accommodate new requests from the regulated entities.

The main components of the IBR are:

• Determination of the regulatory period to ensure the tariff revision is carried out periodically and consistently;
• Determination of the regulated and non-regulated business for the regulated entity and the separation of accounts;
• Determination of financial performance and technical efficiency targets of the regulated entity;
• Implementation of the Automatic Fuel Adjustment (AFA) mechanism effective July 2025, replacing Imbalance Cost Pass-Through (ICPT) mechanism to enable the recovery of actual fuel-related and other generation specific costs; and
• Implementation of efficiency sharing mechanism to provide the regulated entity a continuous and sustained incentive to pursue cost efficiencies in every regulatory period.