Price of electricity to rise by 5%

20.03.2008
The applications for setting prices are undergoing the last round of approvals in the Competition Authority (previously the Energy Market Inspectorate), and when approved, the seven-month long intense negotiations will come to an end. According to the initial calculations of Eesti Energia, the average price increase for the client will be 5%. A price increase that is lower than planned is the result of a disagreement with the Competition Authority, with whom there were differences in position until the end regarding the price of oil shale, which significantly affects the price of electricity, and the price of electric energy from the Narva Power Plants. In Estonia, the price of electricity is formed in three stages, according to the current procedure: coordination of the four different price components of electricity with the Competition Authority, calculation of the weighted average price limit of electricity, and calculation of price packages. As of now, the approval of the price of electricity production at Narva Power Plants and the weighted average price limit of electricity by the Competition Authority have reached the final stage. According to Margus Kaasik, Chief Financial Officer of Eesti Energia, negotiations have been stretched out mainly due to disagreements with the Competition Authority. “Considering that the Competition Authority did not approve the price of oil shale at the requested level and significantly reduced the labour, repair and maintenance costs of Narva Power Plants, it is significantly harder for Eesti Energia to guarantee competitive wages for its employees, take care of the maintenance of the existing production equipment, and the economic profitability of the company is definitely lower for the owner than in previous years," Kaasik said. According to the Chief Financial Officer of Eesti Energia, the average price increase will be lower than the earlier estimates due to the above. “In so far as the Competition Authority coordinates all components of the price of electricity at a significantly lower level than requested, the average price increase will be around 5% according to our calculations,” Kaasik explained. According to Ilman Petersen, CEO of Narva Power Plants, the reason for the higher price of electricity production lies in the calculations that are based on the operational costs needed for the production of electricity – increase in the price of oil shale and environmental fees, fixed costs, repair and maintenance costs and volume of production. The difference between the requested production price and that offered by the Competition Authority is, on the one hand, caused by the changes in the prerequisites that are the basis for the application and not inspected by the Narva Plants, and, on the other hand, by the disagreement between the amount of the fixed costs of the Plants with the Competition Authority. According to Petersen, the price of oil shale was lowered compared to what was initially estimated in the application, while at the same time the Authority and Plants also assess the volume of energy production in the Estonian markets, and the proportion of Narva Plants in this market, differently. The different position on fixed costs affects the new price level of electricity production to a significant degree. “Our opinions with the Competition Authority differ in what the wages of the employees of Narva Plants could be, how often and to what extent we should make repairs, and to what extent we should invest in the updating of production equipment. A price that is significantly lower than what was applied for will bring about a change in the plans for increasing labour costs, a decrease in the repairs of equipment and an adjustment of maintenance plans,” Petersen explained. On the basis of the electricity production price of Narva Plants, the new price for lost electricity will be calculated, which will be a basis for calculating the prices of network services. This means that the electricity transmission fee for Põhivõrk will be recalculated, as well as the distribution price for Jaotusvõrk. After the calculation of new network fees by the network operators, Eesti Energia will approve new price packages for clients and disclose these on 31 March at the latest. Both the new network fees and the new electricity price list will be enforced on 1 July 2008. Eesti Energia wishes that in the following years, the price of electricity would be adjusted once a year, similarly to network fees, to avoid the current situation in which the need for the abrupt increase in the price of electricity is caused by changes in the external environment that have taken place over a long period of time. “The procedure of adjusting electricity prices once every few years will bring about an abrupt price increase due to changes in the external environment, which will place people in a difficult situation. The negotiations with the Competition Authority to index the electricity price as of the year 2009 will start shortly in April. Price indexing will guarantee a more even electricity price formation, according to the development of the economy, until the opening of the market,” Kaasik noted. Regardless of the price increase, the electricity offered by Eesti Energia is still among the least expensive in Europe. Estonia only surpasses Malta and Latvia, but in July of this year, the price of electricity in Latvia will increase by up to 40%. More than 20 European countries have a higher electricity price than Estonia. Additional information:
Helen Attikas
Head of Communication Development
Tel: 715 2255
Mob: 5662 5888
e-mail: helen.attikas@energia.ee