Fiscal Federalism and Local Public Utility Policy in the Conditions of Uncertainty by the Energy Crisis: An Empirical Review

Introduction

One of the important utility services is the production, distribution, and supply of heating, a function that is delegated to public utility companies in the area of heating. Thus, these public utility companies faced a big problem at the beginning of the world’s Energy crisis. The world is facing rising energy costs and a huge challenge in reducing their effects on production. “By contrast, the need to adapt to rising energy costs is neither widely accepted nor widely understood” (Kreps, 2020, p. 696). High energy costs have a significant impact on public utility companies, especially in developing countries where public utility services have been assigned to municipalities, raising questions about the efficiency of the provision of these services. Many affected local communities are struggling with energy problems. The energy markets have experienced significant disruptions since the outbreak of the Russia-Ukraine conflict. In late 2022, soaring energy prices triggered the risk of energy supply shortages, propelling the issue of energy costs to the forefront. The pricing strategy for the heating company has become very important in order to analyze its business strategy.

The implemented pricing strategy is crucial for public revenues, especially in light of the continuous growth in heating energy costs. It is important to strike a balance between meeting the needs of the population and covering costs, given that there is a degree of freedom in determining the price of heating at the decentralized level. In the cities of the Republic of Serbia, energy costs mainly consist of coal and fuel oil expenses. Natural gas presents a challenge for most cities in the Republic of Serbia, making it imperative to implement an adequate heating strategy before its introduction. Research has shown that “the efficient and clean use of coal through district heating systems can help curb the growing demand for heating energy” (Guo & Xiao, 2022). This system has been successful in China, reducing emissions from heating while providing heat to growing areas. It is important to find an optimal business approach that leads to sustainable heating and improves the efficiency of local self-government. Strategic management of public revenues and expenditures is also a key factor in improving the quality of life in cities worldwide.

This paper presents the results of the operation of a public utility company during the ongoing energy crisis, a problem typical of the heating sector in Serbia. It analyzes the performance of a heating company in Leskovac to study the negative impact of the energy crisis. Examining the key principles of fiscal federalism, this paper will examine the rising energy costs and their effect on pricing strategy. This chapter is devoted to analyzing the consequences of the energy crisis and offering recommendations for future challenges. The study is based on statistical data analysis methods applied at the level of local self-government to examine the changes in local policy. The ultimate goal is to achieve sustainable heating and enhance the efficiency of local self-government. By analyzing reports from the public utility company, the paper examines the revenue and expenses to determine the potential impact on the business performance of public utility companies providing heat energy services. The results of the work should create a basis for considering this policy in other countries as well. In order to fulfil the aim of the study, the following hypothesis is tested.

H1. The increase in heating prices of public utility services in the Republic of Serbia is significantly determined by the increasing energy costs as a consequence of the global energy crisis.

We analyze the developing region of the Republic of Serbia and the problems it faces during the period of the current crisis. Based on the relevant data obtained from the primary and secondary reports of the heating company in the city of Leskovac, an appropriate methodology that involves appropriate statistical techniques is implemented. Based on the results and indicators, conclusions are drawn, and recommendations are given for further research in the field of operations of public utility companies with the aim of overcoming the consequences of the energy crisis as easily as possible. Bearing in mind that there is a limitation regarding the availability of data during the research, special recommendations are directed toward the research of thermal energy consumption through district heating and gas.