Montenegro exclusive: Energy regulator sets the financial framework for energy market actors, TSO-DSO, Supplier and Market operator, the report

14. November 2014. / SEE Energy News

In accordance with the valid Methodologies for determining the regulatorily allowed revenue for electrical power entities, on 3rd July 2014, Energy regulator ERA made Decisions on adjusting the previously approved regulatory revenue for the Public Supplier, the Distribution System Operator (DSO), Transmission System Operator and the Montenegro Electricity Market Operator.

The Decisions of ERA had been preceded by the submission, on the part of energy entities, of extensive documentation about the realisation of costs and revenues, as well as of the reports on the implementation of approved investment plans within the previous year. By the Adjustment Decisions, the previously approved regulatory revenue of energy entities for the third regulatory year has been adjusted on the basis of the deviation of the achieved from the previously approved values in the second regulatory year. In accordance with the Methodologies and Rules for Tariffs Modification, the Energy Regulatory Agency adjusts the approved regulatory revenue on the basis of:
·    Realized price of electricity for delivery to the buyers as per the regulated tariffs,
· Achievement of approved investment plans of energy entities,
·    Deviations of the realized and approved costs of energy entities which they can not influence or which they can influence to a limited extent.
·    Realization of invoiced sales on the basis of the services of transmission, distribution, Public Supplier and Market Operator and
·    Achievement of extraordinary business income and non-operating income on the part of energy entities.

The previous regulatory year has been marked by:
·    A significantly lower consumption on the part of distribution customers than it had been planned.
·    The available quantities of electricity produced from domestic sources have been sufficient for covering the consumption on the part of distribution customers and the allowed dissipation in the transmission and distribution network,
·    The introduction of the so-called „G – component “ by which the domestic producers connected to the transmission network have been obliged to pay a specified amount of compensation for using the transmission network as of 1st January 2014.

As the needs of distribution consumers have been covered by domestic production in the previous regulatory year, in contrast to the previous year, there were no conditions for adjusting the previously approved unit price of energy for delivery to tariff consumers for the third regulatory year amounting to 40,7231€/MWh. However, the significant facts that have dominantly determined the price of energy for the following regulatory year should be pointed out here, such as:
·    The making of the Decision on defining the second regulatory period from 01.01.2016 to 31.12.2018 on the part of ERA,
·    The modification in the Methodology for determining the regulatory revenue of the Public Supplier and
·    The making of the Decision on the part of ERA on determining the price of electricity for delivery as per the regulated tariffs.

By the Agency’s decision to equate the regulatory and the calendar year, conditions have been created for a more precise approval and monitoring of the costs and revenue realization of energy entities. As a consequence of such decision of the Agency, the five-month period 1st August – 31st December 2015 i.e. the period between the end of the first and the beginning of the second regulatory period had been left “uncovered”. Consequently, by modifying the Methodology for determining the regulatory revenue of the Public Supplier, the Agency has defined a manner for determining the price of electricity for the stated period. By applying the formula for determining the price of electricity from domestic sources which was included in the regulated tariffs for the stated period, this formula having been previously defined by the methodology, on 1st July 2014, by a separate Decision, the Agency determined the price of energy from domestic sources which was included in the regulated tariffs amounting to 27,9775 €/MWh. Such relatively low price of energy is the consequence of low daily prices of futures for the year 2015, announced on the Energy Exchange in Leipzig („EEX: Phelix baseload, settlement price“) in June 2014.

As the price of electricity for the period from 1st August 2014 to 31st July 2015 had been determined in the amount of 40,7231€/MWh by the Decision of ERA dated July 2012, for the period 1st August 2014 – 31st December 2015, the Agency has opted to determine a uniform price of energy for delivery to buyers as per the regulated tariffs amounting to 36.9744 €/MWh, which has been obtained as a weighting factor of the previously approved price for the third regulatory year and the determined price for the five-month interim period between the two regulatory periods. At this point, it is important to stress that the prices of futures for the year 2015 achieved in June 2014 were almost 20 € lower with respect to those announced in December 2011 as the bases for determining the prices for the three-year regulatory period. This circumstance has caused a significant adjustment of the previously approved unit price of energy for the third regulatory year amounting to – 3,7487 €/MWh, which, on the level of the distribution consumption for the third regulatory year (amounting to 2.246.253 MWh) has resulted in a decrease in the previously approved revenue of EPCG by 8,4 million €. Should the provisions of Methodologies also be taken into account, according to which the delivery of energy for covering the allowed dissipation of network operators is effected as per the price of energy valid for tariff buyers, the additional minus of EPCG on this basis amounts to 1.37 million €.

The percentage of implementation of the approved investment plan of the Distribution System Operator for the year 2013, according to the Agency’s estimate, amounts to 72.46%, therefore, by applying the provisions of the Methodology on the basis of the previously approved return and amortization, the regulatory revenue of the Distribution System Operator has been adjusted 948 thousand € in favour of the Buyers.

As a consequence of the decreased scope of consumption on the part of distribution customers by around 150 million kWh in the second regulatory year, the invoiced sales of DSO on the basis of the use of network have been lower by around 1.8 million €, and according to the methodologies, the stated amount represents a positive adjustment in favour of DSO.

Due to a decrease in the price of electricity from domestic sources, the costs of energy for covering the allowed dissipation in the distribution network have also been reduced by 832.7 thousand €, whereas the achieved extraordinary income of the DSO in the second regulatory year has been by 540.6 thousand € lower than the approved. In the second regulatory year, for the DSO, the costs which an energy entity can not influence have been higher by 190 thousand € than the previously approved.

All these facts have resulted in an increase in the previously approved regulatory revenue of the Distribution System Operator for the second regulatory year by 767.6 thousand €.

The application of provisions of the Public Supplier (PS) Methodology to the achievements in the second regulatory year leads to the overall adjustment of the regulatory revenue of PS amounting to 185 thousand € in favour of the Buyers. This adjustment is primarily conditioned by the adjustment of the return on assets and amortization on the basis of the non-realization of the investment plan as well as the decrease in the working capital caused by a reduced cost of procurement of energy for delivery to buyers.

In addition to the adjustments of regulatory revenue of the Public Supplier and Distribution System Operator, the final amount of the unit prices paid by the end buyers is also affected by the adjustment of the regulatory revenue of the Transmission System Operator (CGES) and COTEE, the summary amount of which, according to the Decision of ERA, is around 13.06 million € in favour of the buyers. The introduction of the so-called ”g-component“ paid by the domestic producers on the basis of using the transmission network as of 1st January 2014 has also had a dominant influence over the amount of adjustment of CGES.

In summary terms, the overall adjustment of the previously approved regulatory revenue for all four energy entities (Public Supplier, Distribution System Operator, Transmission System Operator and Market Operator) is negative and amounts to 20.8 million € in total.

Significant negative adjustments on the basis of the changed cost of energy from domestic sources, as well as the transmission operator’s income created by the introduction of the compensation paid by domestic producers, have caused the total average price of energy and network services towards the end buyers on the distribution network to remain at the level of the one which has been valid for the second regulatory year. Considering the different participation percentage of certain tariff elements in the total price for various tariff categories, the percentage of increase and/or decrease likewise varies according to buyer categories. Thus the new price of electricity with compensations on the basis of the services of transfer, distribution, market supplier and operator is 1.21 % lower for industrial buyers connected to 35 kV voltage, and 2.14% for 10 kV consumers, whereas the price for households with two-tariff meters is by 0.94% higher than the existing.

It can be concluded from the above stated that by retaining the existing average sales price for distribution buyers at the existing level, the overall achieved income on the basis of the invoiced sales of energy and services remains approximately at the current level, it is only the structure of its distribution among energy entities that has changed. This is the consequence of the adjustment of the unit price of energy from domestic sources caused by the decrease in the futures price at the EEX exchange for the year 2015, as well as of the significant reduction of the compensation for engaging transmission capacity paid by the end buyers due to the introduction of the compensation paid by domestic producers connected to the transmission network.

By the newly made decisions of the ERA, the regulation of prices for the first three-year regulatory period has been concluded, thereby creating the conditions for a comprehensive analysis of the applied Methodologies and their impact on the business operations of energy entities and the position of end buyers. At this moment, it is evident that the market movement of energy prices on the regional market does not follow the level of decrease of futures price on the EEX exchange because of which the domestic produced energy does not have an adequate market valorisation according to the new tariffs. It is realistic to expect that, on the basis of detailed analyses made by the Agency on one, and energy entities on the other hand, the existing Methodologies will be further improved in the following period, all with the aim of increasing the efficiency of business operations of energy entities, opening the market and increasing the quality of services provided for the end buyers.

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