With the advent of electric power systems moving to a deregulated retail electricity market environment, calculating distribution service tariffs has become a challenging theme for distribution industries and tariff regulators. As distribution business remains as a monopoly, it is necessary to be regulated. And as multiple distribution companies compete with each other, it would be efficient to adopt competition to the determination of distribution service tariffs. This paper proposes a method to calculate distribution service tariffs using yardstick regulation, which can lead to competition among multiple distribution companies. The proposed method takes into account not only recovering revenue requirements but also the advantages of the yardstick regulation based on long-term marginal costs of distribution network expansion algorithms. A computer simulation is carried out to illustrate effectiveness of the proposed method and it is estimated that the algorithm can be applied to compute the distribution service tariffs under retail electricity markets.