Energy Regulatory Office

On 15th and 16th December the President of the Energy Regulatory Office approved and published the decision on electricity tariffs, which PSE SA, PSE-Operator and 13 distribution companies will apply for customers in 2007. These decisions has been published in the following issues of the URE’s Bulletin on Electricity - from number 52(518) of 15th December 2006 to 57(523) of 16th December 2006. Due to mutual interrelations between tariffs of particular players on the electricity market, processing of tariffs have commenced after PSE SA and PSE-Operator submitted their motions on 31st May 2006. Administration procedure on approval of tariff for one remaining distribution company is still on-going, due to discrepancies between regulator’s requirements and tariff proposal submitted by the company.

Due to investments necessary to support: development of renewable energy sources, promoting co-generation (both of which are regulated by the Energy Law) and securing funds for modernization of generating units, a price of wholesale energy will increase and thus the tariff of PSE SA will increase by 7.4%. However, the tariff of PSE-Operator will decrease by 11.5%, mainly due to lowering share of adjustment component of system charges, which are part of transmission tariff, which in turn is part of electricity generation costs in the long term Power Purchase Agreements, as well as due to the fact that the fixed costs of TSO has been evenly laid out on greater volume of energy supplied from the transmission grid.

Prices of electricity and distribution services for end-users will increase on average by 1,12%. The highest increase of price will be 3,16% in ZE Warszawa-Teren SA and the highest decrease of price will be -2,22% in Rzeszowski ZE. It should be noted that turnover costs in distribution companies will grow on average by 10,17%, however distribution costs will fall down on average by 7,7%.

Generally, average price of electricity will grow (similarly to previous years) due to: necessity of financing growing share of energy from renewable sources and energy from co-generation in total amount of energy supplied to end-users and its prices. Also there is a need to secure a remuneration for grid companies, as they use grid assets in licensed activities (tariff for 2007 is the first tariff that fully secure the return on capital), and finally there is a need to secure funds for generators to modernize and develop their generating units. The greatest influence on turnover prices has generators’ expectations, especially co-generators’. Co-generators expectations, significantly exceeding justified costs level, made the President of the URE to open an inquiry in that sector of the market, in the context of exercising market power.

In individual groups of end-users, prices will change as follows:

A23 (large industry, supplied with 110 kV): from increase of 4,81% in Zamojska Korporacja Energetyczna to decrease of -1,21% in parallel A24 group in LUBZEL,
B23 (large end-users supplied with medium voltage): from increase of 4,47% in ZE Warszawa-Teren to decrease of -4,43% in ZE Łódź-Teren,
C22a and C22b (SME- small and medium enterprises supplied with low voltage): from increase of 3,16% and 3,01% in Energia-Pro to decrease of -12% and 8,56% in ENEA,
C11 (small business supplied with low voltage): from increase of 5,08% in ZE Warszawa-Teren to decrease of -11,32% in Rzeszowski ZE,
C12a and C12b (small business supplied with low voltage): from increase of 4,77% and 4,97% respectively in ZE Warszawa-Teren to decrease of -4,35% and 2,83% in ZE Łódź-Teren,
G11 (average household metered daily): from increase of 4,33% in Energia GK to decrease of -2,93% in ZEORK,
G12 (households using electricity e.g. for heating purposes): from increase of 4,95% in LUBZEL to decrease of -1,72% in ENEA.

Uneven changes of energy supply costs in particular distribution companies are caused by different factors, among them the most important ones are as follows:
- uneven share of individual distribution companies in supplies of energy from transmission grid, which in turn entails, that although transmission tariff decreases, it affects distribution companies in a different level,
- total growth in energy demand is different in individual companies, so as fixed costs of distribution services are spread on a differentiated basis,
- the same growth of percentage of remuneration of assets used in license activities, relates to assets value, which is different for individual distribution companies. The assets value is then related to differentiated supply volumes, which results in various distribution rates between companies, as well as different dynamics of their changes,

In accordance with current provisions, no matter of average prices dynamics, payments for individual end-users shouldn’t grow more than by 5,1%, which means that in comparison with the average price growth, the new tariffs for many end-users will be lower than prevailing ones.

Having regard year-to-year inflation growth for 2006 estimated at 1,2%, and the nominal growth described above, the individual unit cost of supplying national economy with electricity, will remain on current level.