Electricity billing collection reached European standards, Dejan Vasic, Executive at Electricity Distribution Department of EPS

12. February 2013. / Uncategorized

All people who have put their efforts in this process during many years, not only in 2012, are praiseworthy for achieving such outstanding results in billing collection.  We will create two new companies within EPS, operator and supplier, while distribution companies will keep their existing organization, working on behalf and for the new operator and supplier.

When it comes to the electric power industry, this year will be marked by important changes in its distribution part, especially in EPS, which will also affect all other stakeholders in the internal electricity market. According to regulations, in order to be able to provide services to all prospective suppliers of electricity under equal conditions, distribution function should be freed from all other activities. Anyway, we didn’t start our interview with Dejan Vasic, executive at Electricity Distribution Department of EPS, with a question whether the establishment of distribution system operator and supplier would actually produce a tectonic shift, as it was announced last year, or to what extent the expected separation would cause the anxiety among distributors.  We started with the topic of collection as it is a flagship example of good practice in EPS over the previous year.

– With the collection rate of 98.97% of the invoiced realization in 2012 – said Vasic – distribution companies within EPS achieved an excellent result and we should congratulate everyone who participated in this process. This level of collection is typical of developed countries in the European Union, which therefore means that EPS has completely met one of the most important standards in EU energy sector. Of course, this could not have been achieved in short, one-year period. This performance came as a result of years-long hard and persistent work of all the employees in this sector, who, together and individually, deserve to be congratulated on the success. Now we are able to invest more in infrastructure, especially in metering devises, which will lead to further improvement of collection and energy loss reduction.

A high collection rate was achieved in spite of unfavorable overall financial conditions in Serbia and significantly reduced purchasing power of citizens. Does such a success come from an effective application of official sanctions (warning, electricity cutoff, prosecution) or is there another reason?

All of the above-mentioned measures have contributed to a better collection rate. Still, I would like to emphasize the importance of a continual hard work of distributors, which resulted in increasing consumers’ awareness that electricity bills actually must be paid, and that this action wasn’t just another one-time campaign. The other part of EPS’ success story is the fact that most consumers of electricity regularly settle their bills which may be considered as a kind of civilizational progress in the relations between EPS and its customers.

How do you explain the fact that the total debt for electricity is continuing to grow?

Last year, collection rate was better than in the previous five years. Unfortunately, that result didn’t help stop the growth of uncollected receivables from some customers. In early 2012, total debt accounted for RSD 83 billion. In the 3rd quarter of 2012 it rose to RSD 93 billion, of which RSD 78 billion comprising the debts older than 60 days. Namely, the debts accumulated for years lie at root of the problem, and the management of EPS and line Ministry will soon begin to resolve this situation. A large portion of these debts consists of interest, which was previously calculated by the old method of compounding. According to the new model of calculation, which will soon be presented before the Serbian Government, a part of the interest will be written off in order to allow customers to repay the remaining debt in installments, i.e. to reprogram their debt. Truth to be told, a large portion of debt owed to EPS may never be collected, not only because customers cannot meet their obligations, but also because accounting records do not match the actual situation in situ. At some addresses, there is no trace of electricity meter, building or person, who is indeed registered as debtor in the company’s official records. Therefore, writing off a part of the interest will allow distribution companies to update their book entries, unburdening themselves of uncollectible debts.

Regular payers do not look favorably on debt forgiveness, not even on partial write-offs…

You are right, but you should keep in mind that for years EPS has been stimulating orderly payments by giving a 5% discount. Additional discount of 11.89% is offered for monthly consumption of electric power up to 350 kWh, while the line Ministry has recently introduced 15% discount for monthly consumption up to 500 kWh in winter. Also, EPS has set aside substantial funds for financing consumption of socially vulnerable individuals and households for years, but, unfortunately, many of them haven’t used their right. The situation is now arranged by introduction of social maps and category of the so-called “socially protected electricity consumer”. All those who fall into this category will have their monthly bills reduced for 120 kWh.

You’ve already mentioned the priority for reducing losses. From the beginning of this century no plan has led to the desired outcome. Is there any chance for more rapid improvements in this area?

Electricity losses are still a nightmare for EPS and its distribution companies. However, the impression that there have been no attempts to implement plans of loss reduction is wrong. I would rather say that some companies haven’t put enough effort in realization of this goal, but, for instance, “Elektrovojvodina” reduced its losses from 12.23% in 2011 to about 11.5% in the past year. There are similar positive examples in some parts of other companies within EPS, but cumulative effects are lower due to inadequate implementation of loss reduction plans in other parts of those companies, so that the total losses of EPS as a system at the end of September of 2012 amounted to 14.3%. Moreover, the main shortcoming of the loss reduction plans applied so far was that they entirely focused on technical capabilities and goals, without taking into account motivational aspects of performance. At the request of CEO of EPS, our team in Electricity Distribution Department made a proposal for incentive plan aimed at motivating employees, companies and their branches to achieve results. Both collectives and individual employee must be fully informed of the specific reward for reducing losses. We have envisaged the creation of control teams that would work on permanent basis as well as a range of incentive measures. One of the key aspects of these measures implies further investments in metering infrastructure and, in this regard, I would like to outline that in late December EPS announced a tender for procurement of approximately 30,000 electric meters and measuring groups, intended for all distribution companies. It would be good if the first call for bids turned out to be successful having in mind that this tender is classified as emergency purchase since the state of our metering equipment is not good.

Finally, we would like to address an intriguing issue, i.e. an aspect of EPS operations which attracted the greatest deal of attention in the last days of the previous year. Is a model for the separation of distribution still based on “status change”?

No, it isn’t. The proposed solution is different, it suppose the establishment of two new companies, operator and supplier, the model which has already been applied in establishing company for renewable sources.  All distribution companies will keep their current organization and will operate under the umbrella of distribution system operator and supplier, which should obtain the status of public supplier. The new companies will sign contracts with “Elektrodistribucija”, receiving appropriate compensation for their work. As a head of the team responsible for establishing operator and supplier companies, I can now confirm that, given that the deadline determined by the Law has been extended, the market will be liberalized as from January 1st, 2014 for 4000 customers from medium voltage category, since it was the only feasible alternative.  Therefore, it becomes possible to thoroughly explain the meaning of obligations that Serbia has assumed by signing Agreement on Energy Community of South East Europe, which are also imposed by the new Energy Law. The most important thing is that in this way we create necessary conditions for distribution companies as well as for EPS as a whole to operate and develop more successfully.

Following such logic, will these new companies actually be greenfield companies… or is it more accurate to say “virtual”?

The new companies will not be founded as a form of greenfield investments, because they are embodied in PE EPS, nor will they operate virtually. They will have their founding capital, and will operate in compliance with clearly defined contracts with distribution companies. The management of EPS has opted for this solution, given that it is simpler than “status change”, but it still awaits to be approved by the line Ministry and the Government of the Republic of Serbia.

Consolidation of activities

The aim of the establishment of two new companies, i.e. operator and supplier, within the system of EPS is consolidation of activities of distribution system operators on the one hand, and suppliers, on the other.  Distribution companies will be responsible for distribution system maintenance and electric power distribution, namely, for supplying customers on behalf of PE DSO and PE PS. I would like to recall that the operator’ activities will remain subject to regulation. If the supplier gets the status of a public supplier it will have to comply with regulated pricing policy, but it still will be able to sell a part of electric power under market conditions, said Vasic.

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