A Supplier of Last Resort (SLR) in Bulgaria – status, functions

On 5 June 2013 the State Energy and Water Regulatory Commission published its decisions to issue 5 new licenses – for the activity ‘electricity supply by a supplier of last resort  (SLR)’.

What is a SLR doing according to Bulgarian legislation? SLR should supply electricity (or natural gas) to customers who have not chosen another supplier or the supplier chosen does not provide supply for reasons beyond customer’s control (e.g. because of declared insolvency or being in liquidation, withdrawn license or another event that has led to a temporary or permanent discontinuation of electricity supply).

What are the companies entrusted with SLR functions in Bulgaria? Pursuant to the Energy Law, a license for electricity supply by SLR is issued to:

• a lisensee for the activity ‘pubic supply of electricity’ – to customers connected to the power transmission network (i.e. National Electricity Company- NEK EAD);
• a lisensee for the activity ‘supply of electricity by a final provider – to customers, attached to the respective distribution network on the territory of the valid licenses for public supply and supply by a provider (e.g. – EVN Elektrosnabdiavane, CEZ Elektro Bulgaria, ENERGO-PRO Prodazhbi and ESP Zlatni piasatsi).

Respectively, the licenses for electricity supply by SLR (further complemented by rights and obligations related to the activity ‘special balance group coordinator’) issued in 2013, are the following:

1. To the National Electricity Company EAD – License No L-408-17/01.07.2013 for a period of 26 years;
2. To ENERGO-PRO Prodazhbi AD – License No L-410-17/01.07.2013 for a period of 26 years;
3. To CEZ Elektro Bulgaria AD – License No L-409-17/01.07.2013 for a period of 26 years;
4. To EVN Elektrosnabdyavane EAD – License No 413/ 8.07.2013 for a period of 26 years;
5. To ESP Zlatni piasatsi OOD – License No L-411-17/01.07.2013 for a period of 26 years.

From where does SLR purchase energy for its customers? According to §17, item 1 of the Transitional and Provisions (TFP) to the Law on Amending and Supplementing the Energy Law (SG, 59 dated 05 July 2013, in force as from 05 July 2013), up to 30 June 2015, SLR had the obligation to purchase the electricity necessary for their consumers only from the Public Provider (NEK EAD). After this date, SLR were granted the right to conclude deals for purchasing electricity for their customers also at freely negotiated prices, such a price being determined under a methodology approved by EWRC.

What will be SLR role in the forthcoming step toward liberalisation, as from 01 October 2020?

In a situation of migrating from a regulated to a free market, the supplier of last resort has to guarantee, that customers who are obliged to leave the regulated market but have not chosen a free-market supplier/trader or the chosen trader does not provide supply for reasons beyond customer’s control, will not remain without electricity.

All low-voltage non-household customers that have failed to reorient themselves to a free-market trader by 01 July 2021 will fall into such a situation. We need to recall, that with the Energy Law amendments, all customers using medium-voltage electricity were in a similar position after losing the right to be supplied in the regulated market and had to move to the free market.

What is the profile of non-household consumers, connected to the low-voltage network? This is an aggregate of about 300 000 small consumers in the public and services sector with a total consumption of 4.5 M MWh. This group includes schools, hospitals, kindergardens, and companies in the services sector such as hairdressing salons, sewing and shoemaking workshops, lawyer offices. After their transition to the free market, only household consumers will remain in the regulated market, with an annual electricity consumption of about 10 – 10.5 mln. MWh.

What is the timeline of the process planned? The draft law on Amending and Supplementing the Energy Law, voted on at second reading on 17 June 2020 and envisaged to come into effect as from 01 October 2020, stipulates that electricity supply to low-voltage non-household customers from a end suppliers under EWRC-regulated prices is to be left off, i.e. the plan is to bring this customer segment to the liberalised market and have it supplied by a trader at freely negotiated prices.

In case by 30 September 2020, a LV non-household customer has not contracted an electricity  trader at freely negotiated prices, electricity will be supplied by current supplier – end supplier but in its capacity as license-holder under Article 39, para 1, item 5 – in other words, a license to trade. Such a supply will be based on a model contract concluded with customers, the template of which will be approved by EWRC by 31 August 2020.

The model contract will regulate the rights and obligations of parties, electricity supply terms and contract termination, and a maximum contract period from 01 October 2020 to 30 June 2021.

Until the time a model contract is concluded, the supplier – end supplier – ensures electricity supply to customers who pay promptly all due amounts in relation to the supply.

Procedurally, once the legal amendments come into force, the four end suppliers have a 30-day period to notify LV non-household customers that starting 01 October 2020 they can no longer be their supplier; they also have to publish on their website a list of non-household customers who cannot remain to be their customers after 01 October 2020.

On 01 July 2021 customers who have not chosen a supplier – free-market trader – will be supplied with electricity under the provisions of Article 95a of the Energy Law, namely, by SLR.  By the same date – 01 July 2021 – according to the draft law on Amending the Energy Law – a full liberalisation of the wholesale electricity market has also to be implemented.

SLR electricity prices

How are SLR electricity prices set? SLR sell energy to their customers under a ‘Single Scale’ tariff plan only. The price is formed as a sum of three components: price of energy purchased, costs of balance energy and a mark-up for the activity. Pricing rules are contained in the following documents:

• ‘A methodology to determine SLR electricity prices’ approved by EWRC;
• ‘General principles of imbalances allocation in the special balance group of (the respective end supplier/public provider) in its capacity as supplier of last resort and balancing group coordinator’.

Relationships between customers and SLR are regulated in contracts, the general terms and conditions of which are public knowledge, and in line with the Energy Law and the Rules on Electricity Trade.

The electricity prices calculated in the described manner do not include the surcharge Obligation to Society,  which value is determined by EWRC annually and paid separately.

Where is it more expensive – with SLR or in the regulated market?

The figure below illustrates SLR prices for a six-month period from the beginning of October 2019 to the end of March 2020. This period is indicative for two reasons: first, it reflects the initial phase of forthcoming liberalisation and second, it holds higher bills, accumulated due to higher electricity consumption for heating purposes.

SLR electricity prices – for CEZ, EVN and ENERGO-PRO – change on monthly basis within a range of BGN 149/MWh to BGN 191/MWh. As it is seen in the figure, these price levels are dramatically higher than the regulated market prices for low-voltage non-household consumers and do not change within the entire period observed, being in the lower range of BGN 97/MWh and BGN 107/MWh for the respective end supplier. (NB: For the purposes of accurate comparison, regulated prices are calculated without surcharge Obligation to Society at a consumption structure of 69% day energy and 31% night energy).

Where is it more expensive – with SLR or in the free market?

The figure gives an answer to this question as well. If we assume that a low-voltage household customer has contracted a trader to have energy supplied to him/her at a price based on the day-ahead market plus a profit margin (NB: For the purposes of the example, a profit margin is twice higher than determined for end supplier by the EWRC), then the price by months would be in the low range of BGN 67/MWh to BGN 122/MWh.

It can be summarised that SLR energy supply has been more expensive within the period of the beginning of October 2019 to the end of March 2020 – SLR average price achieved of BGN 164/MWh is about 60% above the respective prices in the free and regulated markets.

As emphasized in the previous EMI publication, the European practice is similar: SLR energy prices are on average higher than the prices paid by customers serviced by other suppliers in the majority of European states. There is no Member State where SLR-sold energy is, as a whole, cheaper than a reference standard product. ACER finds this to be a good practice, as it stimulates customers to move towards a supplier different from SLR. If SLR price is lower than the market price, there will be a risk of market distortion because lower price will discourage consumers to terminate relations with SLR and look for a free-market supplier.

What more – apart from energy – are SLR customers paying for? SLR customers, connected to the distribution network, pay also for:

• Price for Obligation to Society
• Price for transmission through the electricity transmission network
• Price for access to the electricity transmission network
• Price for transmission through the distribution network for sites connected to medium-voltage network or price for transmission through the distribution network for sites connected to low-voltage network
• Price for access to the distribution network
• Excise
• VAT

Example: 2020 January bill of a given non-household consumer (Regional Fire Fighting Service with a monthly consumption of 42.2 MWh), connected to EVN low-voltage network:

In this high-consumption month, the selected consumer’s bill in a regulated market reached BGN 8440, representing the cheapest alternative. The free-market option would increase the bill by BGN 1158, while with SLR-EVN – by BGN 2714.