The balancing costs wil not to be recognized
Since 28 February 2014 changes in the Ordinance on Regulation Electricity Prices have been in force. The final version of the text of the Ordinance may be found in the State Gazette and in the electronic legal databases, but it has not been published yet on the Regulator’s web site.
The changes in the ordinance are limited primarily to adapting it to the so called “new price model”, which was already implemented in the regulation practice when determining the prices in August 2013, namely:
- Elimination of (green energy, CHP and stranded costs) surcharges from the electricity transmission price.
- Proportional allocation of costs, rising from carrying out the obligations to the society, based on the ratio between the estimated consumption in the electricity regulated and free market in the country.
- Payment of a separate price “obligations to society” only by the clients on the free market.
- Inclusion of the costs, rising from carrying out the obligations to the society in the total price but not in the form of surcharges for the clients in the regulated market.
- Elimination of the possibility that existed so far for the End Suppliers to buy energy not only from the Public Provider (NEK) but also from producers.
- Annual determination of a cap of the TSO’s cold reserve availability costs.
There is a change in the version of the Ordinance published in the State Gazette, which did not exist in the initial draft document published by the Regulator on 30 January 2014. According to it (Art. 10, paragraph 2, item 2) the Commission will not include in the group of recognized costs “costs stemming from balancing energy transactions, executed under the Market Rules”.
This change contradicts with a number of statutory pricing principles set in the Energy Law, which SEWRC is obliged to follow, such as:
- Art. 24, para. 1, item 1 defining the principle of “fair distribution of the economic consequences of the market liberalization among all parties to electricity and natural gas transactions”.
- Art. 31, item 5, regulating cost-oriented pricing, requiring “The prices for different groups of clients to match the supply costs for these clients”.
- Art. 31, item 2, letter “g”, where it is stated clearly that the balancing costs are economically justified operating costs, which have to be recovered by prices: “The prices to recover the economically reasonable operating costs, including those for the balancing of the electricity system”.
The exclusion of the recognized costs in the prices is not a new SEWRC’s regulatory practice. A typical example are the costs for purchasing electricity from RES plants for previous periods – being recognized by the regulator, but without being encompassed in the prices of the respective companies, which had purchased this energy. Another similar example are the costs of the coal-fired power plants to buy CO2 allowances – recognized, but without the respective upward correction of their prices.
Comparing it to the current practice, the commented regulation change is more “innovative” – the costs arising from transactions with balancing energy, not only are they excluded in the prices, but they are also exculded “in the group of the recognized costs”.
Recognized or not, these costs cannot but arise in transactions with balancing energy, which the End Suppliers are obliged to make. Economic logic requires them to be transferred to those who create them, i.e. to the end customers through the prices. However, SEWRC does not recognize such logic.
So who and how will offset them?
It is yet to be seen.
