After a reduction of the natural gas price, effective from 1 April 2016, with a Decision “Ц –5” (Bulgarian version only) of 31 March 2016, EWRC approved a reduction of the feed-in tariffs for electricity and heat produced by co-generation thermal power plants, burning natural gas as a main fuel.

The main economic reason for the decrease of the prices of the district heating companies is associated with EWRC’s requirement the regulated companies not to achieve any additional revenue resulting from the natural gas price reduction, as well as equal treatment of the interests of the regulated companies and their customers to be in place.

In the composition of the necessary revenue, the estimated costs of natural gas purchase are modified, as they are recalculated using natural gas price of 327.48 BGN/knm3 (for the companies connected to the gas transmission network), which is by 4.89% higher than the natural gas price approved for the second quarter of 2016. EWRC justifies this approach with three main arguments: 1) to avoid abrupt changes of the heat prices; 2) not to reduce the heat price below the fuel component; and 3) the existence of conflicting forecast data on alternative fuels price trends for the upcoming regulatory period and their impact on the expected natural gas price respectively. In addition to this, EWRC considers that the higher than the actual natural gas price, to some extent will compensate district heating companies for the difference between the originally approved estimated quantities and those reported as a result of the warmer winter.

Besides the natural gas purchase costs of the regulated companies, for the major part of the plants EWRC reduces also the approved surcharges to the individual electricity prices, as follows:

• for the companies, connected to the gas transmission network – from 55 BGN/MWh to 43 BGN/MWh;
• for the companies, connected to the gas distribution network – from 70 BGN/MWh to 48 BGN/MWh;
• for the agriculture producers – from 10 BGN/MWh to 8 BGN/MWh.

The regulatory reasoning behind the reduction of the surcharge to the feed-in tariffs for co-generated electricity is related to the Energy Act price regulation principles, including ensuring equal treatment of the energy companies and the different groups of customers, as well as creating incentives for efficient operation. SWRC justifies the reduction of the surcharges also with the possibility the heat prices to correspond to a greater extent to the heat production and supply costs.

The calculation mechanism for the energy price formation assumes, in case the approved estimated costs are reduced, a respective reduction of the value of the working capital, as part of the regulatory asset base. This is the third element of the changes introduced to the necessary revenue of the district heating companies with the EWRC’s decision.

The reduction of the natural gas purchase costs, the surcharge to the feed-in electricity tariffs and the working capital are reflected differently in the end prices of the co-generation thermal power plants, dependant on the structure of the approved necessary revenue and the respective production.

The average reduction of the electricity feed-in tariffs for the major district heating companies (Sofia, Plovdiv, Pleven, Burgas, Varna, Vratsa, Razgrad) is 19%, and of the hot water heat is 7%.

The table below presents aggregated end prices of the major district heating companies:

			Electricity			Price of the Hot Water Heat
			Electricity Individual Price	Surcharge to the Individual Price	Electricity Feed-In Tariff
No	Company	Unit
1	“Sofia” DHC	BGN/MWh	91.72	43.00	134.72	66.81
2	“EVN Bulgaria Toplofikatsia”, Plovdiv	BGN/MWh	96.43	43.00	139.43	68.73
3	“Pleven” DHC	BGN/MWh	96.78	43.00	139.78	46.80
4	“Bourgas” DHC	BGN/MWh	90.20	43.00	133.20	44.61
5	“Veolia Energy Varna”	BGN/MWh	112.23	43.00	155.23	64.90
6	“Vratsa” DHC	BGN/MWh	115.18	43.00	158.18	61.60
7	“Razgrad” DHC	BGN/MWh	100.42	43.00	143.42	61.75
	Average price:				143.42	59.31