The Report (Bulgarian Version) and The Draft Price Decision (Bulgarian Version) of the EWRC show that the third last year of the fourth regulatory period will put the electricity distribution companies (EDCs) at current and longer-term financial risk.

Energy losses grow

From the beginning of July 2017, the EDCs will buy energy to cover its network losses at 70.46 BGN/MWh instead of 39.99 BGN/MWh, as the current price is. The supplier, as until now, will be NEK and the price will be regulated. EWRC justifies the new higher price levels with a detailed calculation of the prices of the energy that NEK will buy from the different producers to cover the specific load profile of the distribution companies.

Besides the price of energy, the EDCs will also pay higher prices for the ESO network services (access price and transmission price) and a higher “Obligations to Society” price. In total, these three factors will lead to an increase in their costs of purchasing of one MWh of electricity by 31.41 BGN.

Higher prices will increase the total costs of the EDCs for energy for the forthcoming price year by approximately BGN 64 million, but only if their losses are within the range approved by the Commission – 8% of purchased energy for CEZ Razpredelenie and Elektrorazpredelenie Yug (EVN) and 9% of purchased energy for ENERGO-PRO Networks.

Both the actual and expected losses for all three EDCs are higher than the approved ones. In the report and the draft decision of the EWRC, it is planned NEK to sell to the three EDCs 2.7 TWh for the period from the beginning of July 2017 until the end of June 2018, which significantly exceeds the regulatory limit. Buying energy outside the volume allowed will cause additional costs for the EDCs. These costs, totalling BGN 80 million, will not be recognised by the regulator and therefore they are an imminent liquidity risk for electricity distribution companies – they must restructure their business plans to provide this missing financial resource.

Thus, the forthcoming price year will bring the EDCs up to BGN 144 million in problematic energy costs (increase in recognised and unrecognised costs). In order to get a better idea of the scale of the problem – it is equivalent approximately to the annual costs of the companies for personnel and materials.

Costs grow, but revenues – they do not

In fact, increasing the costs of purchasing energy within the amounts approved by the regulator should not create financial problems. Generally, the higher energy price set by the regulator, which inevitably leads to higher costs, is a clear reason for approving reciprocally higher required revenues for the regulated companies.

In the present case, however, this is not done. The required revenues of the EDCs approved by the regulator for the forthcoming price year are BGN 714 million – as much as they are for the current year.

Downward correction of revenues    

After analyses and checks aimed at comparing forecast and reporting data, the EWRC has taken decisions to reduce the required annual revenue of the EDCs.

Due to the deviations between forecasted and reported investments for 2015 and 2016 (also taking into account the forecast for 2017) and due to deviations between forecasted and reported quantities of electricity transferred, the necessary revenues of the EDCs have been reduced by a total of nearly 58 million BGN.

Downward correction of EDCs’ revenues is comparable to increases in energy costs. Thus, although the costs recognised by the regulator for the next price period are higher, both the EDCs’ revenues and the network prices will remain practically at their current levels.

The EWRC’s decisions are clear, the problems with the EDCs either. In a few days, they will be faced with the difficult task of mobilising financial resources and providing with no disturbance purchases and transmission of energy over the network. In the longer term – to seek strategies to reduce energy losses that cause them an annual deficit of tens of millions of BGN.