ENERGY REGULATORY OFFICE

Transcription

1 ENERGY REGULATORY OFFICE Current Status f Price Cntrls, Tariffs Develpment and Apprval at ERO Natinal Assciatin f Regulatry Utility Cmmissiners Energy Regulatry Partnership Prgram Energy Regulatry Office and Illinis Cmmerce Cmmissin Secnd Partnership Activity Muharrem Gashi Pricing and Tariffs Department 1

2 Presentatin Structure 1. Legal framewrk fr tariff regulatin 2. Overview f ERO s tariff methdlgy 3. The 2009 electricity tariff review 4. Challenges and issues 2

3 Legal Basis Internatinal bligatins Energy Cmmunity (ECSEE) Treaty Eurpean Unin acquis (esp. directives n electricity industry restructuring and regulatin, security f supply and public service bligatins) Primary legislatin (issued by the Natinal Assembly) Law n Energy Law n Electricity Law n Energy Regulatr Secndary legislatin (issued by ERO) Rule n Principles f Calculatin f Tariffs ( Pricing Rule ) establishes prcedures fr tariff applicatins and reviews Tariff Methdlgy Regulatry Accunting Guidelines includes templates fr submissins by licensees Tariff Applicatin Guidelines includes templates fr submissins by licensees 3

4 Main Legal Requirements Prices fr use f the netwrk are prpsed by netwrk peratrs annually, in a manner that encurages efficiency and takes accunt f average tariffs fr the preceding 12 mnths. (Law n Electricity, Article 25.2) The tariff methdlgy shall be based n the fllwing principles: prices shall be reasnable, nn discriminatry, based n bjective criteria, and determined in a transparent manner; prices shall be primarily dependent upn the justified csts, including nnrecverable stranded csts; ERO shall be permitted t establish perfrmance based rates; prices shall take int cnsideratin custmer prtectin and envirnmental cncerns; prices fr individual custmer grups shall cnfrm t the csts f delivery f electricity t thse custmers; crss subsidies f custmer classes shall nt be permitted; crss subsidies within vertically integrated cmpanies shall nt be permitted (Law n Energy Regulatr, Article 46.2) 4

5 Tariff Regulatin Principles Allwed revenues are adequate t allw licensees t finance their activities recvery f reasnable perating and maintenance csts supprt cmmercial financing f assets where dnr funds nt available Prpsed revenues include incentives fr imprved efficiency KOSTT and KEK have set challenging but achievable targets fr key perfrmance measures retain prfits frm beating targets and incur lsses if they are nt achieved new lwer csts are used t reset allwed revenues at end f Price Review Perid Allwed revenues are set fr a three year perid prvides sufficient time fr incentives t be effective mre stable and predictable revenues and tariffs, t allw frward planning and budgeting 5

6 Overall Framewrk Allwed csts are established separately fr KOSTT (TNO and SMO) and each f KEK s businesses (Mining, Generatin, Distributin Netwrks, Public Supply) Allwed revenues recvered frm regulated retail tariffs are determined as allwed csts less unregulated revenues (including incme frm sales t eligible custmers) At present, ERO apprves regulated retail tariffs DUOS charges (fr use f the distributin netwrk) TUOS charges and SMO charges In future, with the unbundling f KEK, it may als be necessary t apprve transfer prices frm Generatin t Public Supply 6

7 Financial Flws in the Electricity Market KEK Generatin HPP Ujmani Distributed Generatin Imprts + Exprt Traders Ancillary Services KEK Distributin DUOS KEK Public Supply TUOS KOSTT Ksv Cnslidated Budget Nn Eligible Custmers Alfern+ SharrCement (Eligible Custmers) Mney Payments (invice in ppsite directin) Payments fr Secndary Frequency Regulatin (Ancillary Services bught abrad) Payments fr energy t cver lsses (invice in ppsite directin) Imprt Subsidy + Vulnerable Custmer Payments 7

8 Frequency f Reviews Currently, allwed csts and regulated tariffs are reviewed annually. This is a cnsequence f the majr uncertainties due t pr quality data and rapidly changing internal and external envirnment ERO intends t intrduce three year price cntrls fr transmissin and distributin netwrks in the future, when data availability permits 8

9 Methdlgy Overview Allwed csts are determined fr each business and KOSTT using a building blck apprach csts = pex + depreciatin + WACC * RAB (WACC: weighted average cst f capital / RAB: regulated asset base) Cst line items are individually reviewed typically against actual levels and allwed levels in previus years ERO als establishes allwed levels f technical and cmmercial lsses t be recvered frm regulated tariffs (cllectin lsses are excluded) KOSTT (as TNO) and KEK Netwrks are required t purchase transmissin and distributin lsses. They keep the savings frm reducing lsses belw allwed levels (and pay the additinal csts f lsses exceeding allwed levels) A number f adjustments are applied fr changes in csts utside the cntrl f licensees. Where licensees fail t make investments fr which funds were allwed, the difference is clawed back 9

10 Investments and Capital Csts ERO des nt currently permit a depreciatin allwance r a return n pre 2006 assets Licensees are permitted t recver the csts f maintaining these assets in service n a pay as yu g basis, with the csts included in allwed perating expenditures A cmmercial return and ecnmic depreciatin is permitted n assets cnstructed past N return is allwed n grantfinanced assets but a full depreciatin allwance is applied This apprach was adpted fr tw reasns t avid a sudden sharp tariff increase at the first price review, which wuld have been the case if full depreciatin and returns n existing assets were allwed t reflect that licensees have n financing csts assciated with these earlier assets. Later assets were cnstructed using grant funds. 10

11 Allwed Revenue Calculatin Allwed Revenues = O&M Csts + Depreciatin (Fr assets past 2005) +Allwed Return (WACC*RAB) 11

12 Reaching Cst-Reflective Tariffs Achieving plitical and scial acceptance fr the eliminatin f crss subsidies remains a majr challenge. ERO plans t expand public educatin effrts in this field As part f ETR3, KEK prpsed an alternative apprach t determining cst reflective tariff levels t that currently applied by ERO (essentially using embedded rather than marginal csts). This is under review by ERO The intrductin f retail cmpetitin in line with the Energy Cmmunity Treaty will facilitate the intrductin f cst reflective tariffs as existing crss subsidies will be eliminated ERO will need t develp apprpriate nging scial prtectin mechanisms t cmpensate fr this future lss f crss subsidies 12

13 Summary f ERO Cst Allcatin 13

14 Balancing Affrdability and Efficiency Gradual mvement twards tariffs that reflect the real cst f prductin Gradual mvement twards eliminatin f crss subsidies and replacement by direct subsidies Cst Reflective Tariffs Affrdable Tariffs Scial Tariff Wrks alngside relevant institutin in setting lifeline tariff Defines methds t prtect vulnerable custmers Apprved tariffs shuld be affrdable, ensuring that the custmers are able and willing t pay Husehld Tariffs shuld nt be immediately increased t cst reflective levels because such an actin may place a heavy unaffrdable burden n the custmers 14

15 Current Situatin Registered scial cases have their electricity bills paid by Gvernment but this assistance des nt accmmdate all vulnerable custmers A rising blck tariff is therefre applied fr husehld custmers, t ensure affrdability fr all vulnerable custmers Three blcks are used First blck: <200 kwh/mnth. 30% discunt n average residential tariff Secnd blck: kwh/mnth. 10% discunt n average residential tariff Third blck: >600 kwh/mnth. Set s ttal revenues frm residential tariffs equal thse allwed by ERO The first blck is large relative t internatinal cmparisns. This is because f the reliance n electricity fr space heating in Ksv 15

16 Intrductin f Cst-Reflective Tariffs Cst reflective tariffs are being implemented ver a transitin perid, in rder t minimize custmer burden in the case f eliminating crss subsidies within ne year This allws fr tariffs t be set at levels that are generally scially acceptable and avids large changes in relative tariffs Critically, it als lwers the risk that large increases in husehld tariffs will result in lwer cllectin rates, reducing ttal incme verall A majr rebalancing was undertaken in 2007 (the first review f tariffs by ERO, and the first review since 2000) Smaller adjustments have been made in subsequent reviews 16

17 The Prcess f the Third Electricity Tariff Review (ETR3) 17

18 Calculatin f Tariffs ERO has develped a Revenue and Tariffs Mdel t assist in calculating allwed tariffs. This is shared with licensees, wh can undertake their wn analysis using the mdel The mdel calculates cst reflective tariffs fr each custmer categry, brken dwn int custmer (standing) charges energy charges demand charges reactive pwer charges The resulting tariffs are then adjusted t give acceptable tariffs, meeting scial cncerns, while leaving allwed revenues unchanged The mdel als calculates TUOS, SMO and DUOS charges as well as an implied whlesale pwer price frm KEK s Generatin business t its Public Supply business 18

19 Cnsultatin Prcesses ERO initially invited licensees t submit draft applicatins fr review and infrmal discussin. This helped t reslve majr utstanding issues Fllwing the subsequent receipt f frmal applicatins, ERO prepared and published a Cnsultatin Paper summarizes applicatins describes ERO s analysis f the applicatins sets ut ERO s draft prpsals n allwed revenues and tariffs Licensees and ther stakehlders prvided written cmments in respnse t the Cnsultatin Paper Fllwing review f these cmments, ERO prepared and published a Respnses Paper summarizes cmments received and ERO s review f these updates ERO s prpsals n allwed revenues and tariffs Further written cmments were then invited prir t discussin and issuing f a decisin by ERO s Bard. The Bard s discussin is pen t the public Internally, the review prcess is managed by ERO s Pricing and Tariffs Department headed by a Bard Member 19

20 Mining and Generatin 20

21 Adjustments 21

22 Cst and Revenues 2009 Mining GeneratinNetwrk Supply HQ Ttal KEK KOSTT Ttal System External pwer purchases 000s , , ,450 imprts 000s , , ,606 nn KEK generatin (transmissin) 000s , , ,824 nn KEK generatin (distributin) 000s , , ,020 exprt revenues 000s Operating csts 000s 45,397 31,533 18,910 5,172 10, ,012 7, ,348 Supply margin 000s , , ,483 Depreciatin 000s 1,666 3, ,968 2,349 8,317 Return 000s 6,269 6,255 2, , ,785 Ttal allwed csts 000s 59,004 43,436 24,896 70,816n/a 198,153 11, ,789 Unregulated revenues 000s 1, ,933 n/a 20, ,223 Ttal allwed revenues befre subsidies and adjustments 000s 57,714 43,436 24,896 51,883n/a 177,930 11, ,566 Subsidies 000s ,000 n/a 42, ,000 Adjustments and recnciliatin 000s 6, , n/a 8, ,779 Ttal allwed revenues recvered frmregulated tariffs 000s 51,057 42,565 23,891 10,407n/a 127,920 11, ,

23 Allwed Revenues fr Retail Tariffs Regulated Retail Tariffs 2009 Tariffs KEK (excluding crss charges / in clu d in g HQ csts) Mining 000s 51,057 Generatin 000s 42,565 Netwrk 000s 23,891 Supply 000s 10,407 Sub ttal 000s 127,920 KOSTT (excluding crss charges) 000s 11,867 Ttal (w ith s u bs idie s deducted) 000s 139,787 Su bsid ies 000s 42,800 Ttal (w ith s u bs idie s nt deducted) 000s 182,587 Distributin lsses Ttal Energy Entering D ist rib u t i n M W h 3,8 4 4, Technical % 17.1% MWh 657,409.5 Nn Technical (Cmmercial) % 20.0% MWh 768,900.0 Sales t Transm issin nn elig ible custm ers M Wh 146,300.0 Ttal Sales t Nn elig ible custm ers M Wh 2,564,490.5 Average Tariff (with su b sid ies deducted) eur/m Wh 54.5 Average Tariff (withut su bsidies deducted) eur/m Wh

24 Distributin f Csts and Revenues Relative Distributin f Csts and Revenues Percentage f Cst/Revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mining Generatin Distributin Supply HQ KOSTT TAR Divisins Lsses Opex Return Depreciatin Mining Generatin Distributin Supply HQ KOSTT 24

25 Key Challenges The single greatest challenge facing the electricity industry in Ksv is the lw cllectin rate (75%). Increasing this wuld slve many f the industry s financial prblems A majr prblem is hw t get licensees t respnd t incentives in the tariff mechanism. Public wnership and plitical cntrl makes it difficult fr licensees t cut csts and pursue nn payers Scial cncerns remain very high, inhibiting large tariff increases. The transitin t higher tariffs is cntrversial and takes time Massive investment in the transmissin and distributin netwrk is needed. Cmmercial financing will be required t supplement current dnr and gvernment funding but can this be attracted? And then there is the New Ksv Thermal Prject

26 Impacts f Retail Cmpetitin The intrductin f retail cmpetitin in line with the Energy Cmmunity Treaty will facilitate the intrductin f cst reflective tariffs as existing crss subsidies will be erded custmers cnsuming >500 MWh/pa eligible by 1 January 2010 custmers cnsuming >150 MWh/pa eligible by 1 January 2011 all nn husehld custmers eligible by 1 January 2012 all custmers eligible by 1 January 2015 Hwever, ERO will need t develp apprpriate nging scial prtectin mechanisms t cmpensate fr this future lss f crss subsidies 26

27 THANK YOU 27