Interview: Mr. Zeljko Markovic, Director of EPS for Distribution System, Efficiency determines the operator

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Customers on the open market are welcomed by five different network fees.  – In the public supply, the network fee is the same for all the customers in Serbia – What is important is the whole, but the parts as well

After the opening of the internal electricity market and implementation of the new legal solution, electro distribution remains a governed activity, in contrast to all the other activities covered by the “Electric Power Industry of Serbia”. The height of the eligible cost of carrying out the distribution activities, that is the maximum allowed revenue, will still be determined by the regulatory body (the Energy Agency of the Republic of Serbia- AERS) which will, among other things, determine the price of the network fee in the price of the kilowatt-hour and give the assent to the strategy and plans for the development of the distribution network. Yet, in the electric distribution of EPS a lot of things should be changed in order to meet the demands of the open market and work for the benefit of the customers and unitary company of EPS. We spoke with Mr. Zeljko Mitrovic, the director of EPS for the Distribution System, about what follows and at which open issues, regarding the organization of the distribution, the answers should be found, so that they could successfully take the role of the distribution system operator (DSO).

With the launch of the new company “EPS Supply”, the interrelationships between the suppliers and distributors, which have stayed at the same companies, are governed by the Service Level Agreements (SLA). Does this separate the supply from the distribution activity?

With the beginning of “EPS Supply” the two activities are basically separated and the conditions to go further are made. Current Distribution Companies will perform the services for the supplier, but this is not the ultimate goal. Legal solutions are set to point to distributors to do only their job. Thus, since the distribution activity is regulated, distributors does not benefit from being engaged in other activities except maintenance and development of the distribution network. Up to the extent of the revenue, which comes from the provision of the other services, the price of the network fee in the kilowatt-hour will be minimized, and therefore the maximum allowed revenue (MAR) remains the same. Therefore, it is very important in one company to round up the supply activity, and to organize better the distribution in the ED Company.  This separation must be done as soon as possible. The suppliers can stay in the business premises for the distribution, but to work for the company “EPS Supply”, and not to perform their duties as employees in the distribution.

You have mentioned the network fee. Will it be uniform for all the electricity customers in Serbia?

In Distribution the network fee is the same for all the customers in the public supply, since there is one company for the supply. As such, it has been included in the new price of the kilowatt-hour. However, in Serbia the market for the large customers has been opened at the beginning of the year, which does pay the network fee to the EMS, because they are supplied at high voltage. Nevertheless, from the next year, the right on the public supply will lose the 4,000 customers at the medium voltage, so that the 36 percent of the electricity market is going to be open, where the price of the electricity is going to be disputable, and the network fee may be different due to the different distribution costs. From the beginning of 2015, when the household and small customers get right to choose their supplier, we can rely on the openness of the internal electricity market up to 45 percent. As for the network fee, AERS now recognizes the variety of costs to the Companies for the distribution, so that the largest cost is approved to the “Electro Serbia” and the lowest to the “Center” Company. The size of the consumer, the development of the ED and the distribution area that the company covers has the influence on the amount of the network fee.

Will the network fee be the same for all the customers at the free market in Serbia if there is only one operator of the distribution system?

Yes. In that case we would have one, average price for the expenses of the electricity distribution. However, this isn’t the only reason why we consider forming one Operator of the distribution system (DSO) or only to make organizational and work changes in the existing distribution companies, which are required by the new legislation. When this question is raised, and it has been raised since the passing the previous Law on Energy, than you must consider all the pros and cons of one or the other solution.

You’ve recently in the meeting of EPS talked about strength and weaknesses of both, but also you expressed your personal opinion that DSO, with a minimum of joint functions and preserved almost all features of the current ED Company, would be the best solution. How many adherents of this view are in EPS?

The pros and cons of both solutions are still weighted, so that the number of the adherents of a particular opinion is irrelevant in addressing the arguments.  More important is what is gained and what is lost with one or more DSO. At the recent advisory CIGRE of Serbia, the Chairman of EPS, PhD Aca Markovic said in his opening that the choice between these two solutions is the question of centralization and decentralization. He explained that the centralization strengthens the company from the inside, and the centralization from the outside.  That axiom could be seen if we compare the advantages and disadvantages of both solutions.  Let me cite just a few advantages. For example, if you have more DSOs, there is a constant possibility of comparing their successful performance. If there is one DSO, than its performance can only be compared with the operators in the countries in the region. More operators allow better allocation of the resources in Serbia by the place of the cost and better response to the problems the environment is facing. A larger number of the operators can be created even if the current branches of the ED Company get the status of DSO.   In that case, the response to the disturbance would be easier. Also, if there is more than one operator and one is in the problem, it will not jeopardize the rest of them. The smaller systems, however, are more sensitive to the external influence and in some segments less efficient. For example, they are more distant from the owner (state), because almost all the questions that need the answer of the state, must address to the local administration first.  With more DSOs, the position of the local utility worker is practically unavoidable. One DSO, as an important utility in the Republic, would have better communication with the national authorities, and ED system, which is managed by DSO, would become more robust and less sensitive to the disturbances. It is true that in this case there is a danger of missing the allocation of the funds by the place of costs, but it could be solved with more autonomy  of the parts of one DSO, and of course with the help of corporate function of EPS.

What would remain within the scope of the current Distribution companies, in case of one vertically organized DSO?

With one DSO we would have vertically organized company within EPS group, which would have “roof” management with minimum joint functions, similar to what the EPS distribution do now. Also, it would have its own parts (branches), where almost all the functions of the current EPS would be preserved, except the status of legal entity. Some joint functions could be centralized, such as the implementation of the development strategies and major investments. Money from the profit would be allocated where it is the most needed, and there would be a possibility for the additional, emergency investments in underdeveloped parts.

The same and different price

– Network fee is the same for the customers in public supply and at the open market, but it is not the same at each Distribution Company. Therefore, we have five different network fees in Serbia. The largest network fee is in company “Electro Serbia”, than company “Electro Vojvodina”, “Electro Distribution Belgrade”, “South-East” and “Center”. Different network fee may affect the investor commitment to the area he will invest his money, because his selection depends on where the production and operation expenditure is higher or lower- said Markovic.

As soon as possible to the answer

– It is very important to get the answer as soon as possible. If there will be one or more distribution system operators is not decided only in EPS, but in the relevant state authorities   who are also committed to the achieving the spirit of the Energy Law. Additional question in these considerations is whether we will meet January 1st 2014, when nearly 30 % of the internal electricity market opens, with the five different network fees in Serbia – Markovic pointed out.

Source; Kwh