Electricity prices for consumers in Montenegro will depend on stock prices, but the Energy Regulatory Agency (RAE) will protect consumers from large increases. New water prices can be expected at the end of 2018 or at the beginning of 2019, the president of the board of directors of RAE Branislav Prelević said in an interview with "Vijesta".
Do you consider the 1 percent increase in electricity prices as of January 2,7, as announced by Elektroprivreda, to be realistic?
Determining the price of energy is clearly defined by the Law on Energy and does not leave us the possibility to comment on prices as real or unrealistic. On December 15, the Agency received the proposed price from Elektroprivreda as a supplier. We had the option to agree with that proposal or not. As you know, we did not react, thus expressing our consent to the procedure and the final price per kWh. Although the method of determining the price of electricity can be complicated for the general public, it is precisely because of them, that is, those who want to know the truth about this difference, that we should go into details.
For each subsequent year, in this case the year 2018, the price is determined by recording the futures amounts for the following year 2017 for each September working day of the Budapest Stock Exchange (HUPEX) in 2018. The average of these futures, which in this case amounts to 48,42 eur/MWh, represents the market price of electricity. In order to protect consumers, the market price determined in this way is not applied directly, but is relativized by putting it in relation to the existing price, which is 37,99 eur/MWh. The arithmetic mean of these two prices (43,20) should represent the price for 2018. However, there is another level of consumer protection. The law says that if the price formed in this way exceeds a six percent increase compared to the existing price, this limit of six will be applied, so the price of electricity that will be applied by the supplier in Montenegro will be 40,27 eur/MWh instead of 43,20. 2,7 as previously calculated. Since the energy itself in the total tariff paid by the consumer represents only a part of that tariff (the rest is the transmission and distribution network, as well as fees for the market operator and renewable energy sources), this increase of six percent is reflected in the total tariff as an increase of 8,44 .8,67 percent, that is, the tariff will increase from 2017 euros/KWh to XNUMX euros/KWh without VAT. The price for XNUMX was determined in the same way, only then this resulted in a slight price reduction.
Such restrictions will certainly be good for consumers because they will not pay the full market price for electricity, but they will certainly have a negative impact on the business of Elektroprivreda, which will not be able to valorize its produced electricity like other producers who market their electricity on the stock market. From a long-term perspective, significant deviations from the market price in a longer interval cannot be good for the situation in any sector.
What are the projections on the movement of electricity prices on the stock exchange for the coming year, can we expect an increase in electricity prices in Montenegro in 2019 as well?
The formation of the price of electricity on the stock exchanges is influenced by numerous factors, including the increase or decrease of production capacity, the hydrological situation, the movement of prices of other energy sources, especially oil on the one hand, but also consumption, that is, the need for electricity on the other.
Electricity price projections on the stock market are reflected in futures. Based on the prices achieved on the stock market in 2018, futures for 2019 will be determined, so the direction of electricity prices in Montenegro in 2019 can be seen in the second half of 2018, and more precisely determined only in the fourth quarter. in 2018. For households and small customers, the method of determining the electricity price and growth limits in 2019 will be the same as in 2018.
Does the quality of the distribution network correspond to the price of electricity paid by citizens in Montenegro?
The operator of the distribution system - CEDIS, is obliged to ensure the long-term stability of the system to meet the realistic requirements for the distribution of electricity, that is, to provide reliable and efficient distribution. From your question, one could conclude that consumers are paying high prices for the distribution network. We need to objectively evaluate what CEDIS provides us on the one hand and the price of that service. In order to improve the quality level, in mid-2017, the Agency determined the Rules on the minimum quality of delivery and supply of electricity, which also include the minimum quality of services provided by CEDIS. By applying these rules in combination with the rules on the functioning of the distribution system, CEDIS is obliged to ensure the delivery of electricity to the end user, respecting the standards related to the timely notification of customers about interruptions in power supply, re-establishment of power supply, the period for connection, control of the correctness of the metering point, but also eliminating voltage deviations. The same rules provide for the application of financial compensation for cases when the minimum service quality is not met by the energy entity from August 2019.
On the other hand, the prices of their services are significantly below the European average. The fact is that a lot has been invested in that system in recent years, as well as the fact that significant investments are expected in the coming years, which implies a better quality of service, which, in my opinion, will not result in a significant price increase.
There is still a lot of room for optimizing the distribution network, which the Agency is gradually but surely opening up. One of such measures is the inclusion of the calculation of contracted power for consumers whose power is measured. The application of this segment of our methodologies was temporarily postponed in 2017 due to the reluctance of this category of consumers to cooperate, but as of January 1, 2018, the methodology is already in use and I expect significant optimization and quickly visible results from this measure.
What are the current losses of electricity in the distribution and transmission network, and how much of that does RAE accept as justified in the price calculation? Will RAE reduce the accepted percentage of electricity losses in the network in the coming period?
Losses due to the distribution of electricity in 2016 amounted to 15,62 percent. Already here we notice a significant shift compared to the losses in the earlier period. Let me remind you that losses in 2012 amounted to 20,84 percent, while in 11 months of 2017 they amounted to 14,73 percent.
The degree of losses that is included in the price for end customers is 8,64 percent. Since the costs of the difference in realized and approved losses are not recognized by the Agency as allowed income, this cost falls exclusively on CEDIS, without burdening the end customers. For the regulatory period 2017-2019. In 8,43, the approved losses are expected to further decrease to XNUMX percent, which was determined based on the loss study.
As for the transmission system - CGES, based on the study of losses in the transmission system, a loss rate of 3,73% was determined for the regulatory period 2017-2019. years.
In the coming period, the agency will continue to contribute to the optimization of the degree of losses on the transmission and distribution system, primarily through the approval of development and investment plans and the determination of legally permitted income and prices.
RAE will also regulate water prices from 2018. When will the methodology be completed?
That's right, we have already started working on the methodology that would determine the revenues of the water companies, at the same time the allocation of such defined revenues to consumers and thus finally arrive at the price of the service, that is, the price of water per cubic meter.
The development of the methodology for determining the mentioned prices is ongoing, although so far we have devoted more time to the analysis of the current situation and the collection of data. The special service for water within the Agency has only been completed these days, so we expect real work with foreign consultants in the next two to three months. Bearing in mind that this is a very complex process, which requires a deep analysis of all indicators of the work of water companies, in order to properly determine the method of regulation and create conditions so that companies can cover the costs from the price of the service, and that, on the other hand, consumers can to pay - it is ungrateful to set a deadline by which the methodology will be completed, especially since the quality of the solution itself is crucial for us. This achieves one of the goals of the regulation - the balance of the interests of users and water supply companies.
At the same time, the Agency looks at the elements that are determined by the Law on Utilities to make up the price structure of the service and reviews whether they are correctly determined or whether intervention in the law itself will be necessary. In the meantime, we analyze the business documentation of water companies, primarily the financial indicators of their work.
Any solution that is applied in the economic regulation of water supply and removal and purification of waste water requires the establishment of realistic prices for water services that should ensure the coverage of realistic realized costs.
Of course, after determining the proposed methodology, a public discussion will be held and all interested parties will be introduced to the content of the methodology, primarily water companies and consumers, so that here too, in the interest of transparency and quality, the Agency expects certain useful proposals.
When can we expect new water prices?
After adopting the methodology, the implementation period follows. Based on the methodology, the water supply companies will determine the water price proposal that they must submit to the Agency for approval. Whether it will be at the end of 2018 or in 2019 is less important, how important it is that all actors in this process are ready.
Given that water prices vary from municipality to municipality, will RAE lower water prices in some municipalities? Do you expect problems with the municipalities because of that?
I will answer with the best of intentions - somehow it seems to me that your second question insinuates my yes answer to the first, however, I will disagree with you. Namely, until the final text of the methodology is determined, it is ungrateful to bid with an affirmative or negative answer to the question of reducing or increasing water prices. We really don't know at this point and we're not burdened by the price at all. In this procedure, the regulator must not be guided by particular interests where you have preferred prices in advance. Such an approach would be doomed in advance. A well-chosen methodology, which respects all regulatory principles, will by definition give adequate prices.
Economic regulation of network companies or activities is a science. It has its own principles, laws, mechanisms that you must respect. This is exactly why there is so much insistence on the independence of the regulator. With our independence and expert knowledge, we have had no problems so far.
Become an observer in ACER, EU rules are applied for market regulation
What does the assignment of an observer position in ACER mean for RAE?
In order to understand the importance of obtaining observer status in ACER, it is necessary to emphasize what kind of institution it is. Figuratively speaking, ACER is the first European league of regulators. Namely, ACER was established to coordinate cooperation between regulatory bodies of the European Union, to monitor internal markets, develop framework guidelines for all new initiatives, and to facilitate the uniform application of laws on the internal market of electricity and gas throughout the European Union. ACER members are regulators from the European Union. The right of access to ACER working bodies can also be acquired by regulators from so-called third countries, but only after fulfilling a number of conditions that must be met at the sector level. The assessment of the fulfillment of the RAE conditions was assessed first by the Energy Community, as an institution to which regulators from outside the European Union belong, and then by ACER. The satisfaction of signing the Agreement is greater because RAE is the only regulator that is allowed to access and work in the working bodies of ACER if its home country has not previously become a member of the EU.
For every new investor in the energy sector, our newly acquired status in ACER is information that means that he has come to a country where the laws and principles of the European Union are applied in the energy sector. This is a great recognition for RAE and for the Montenegrin energy sector. It is the fruit of hard work, acquired experience and a high degree of professionalism that has been cultivated in our Agency for years. Of course, we have a lot of work and new responsibilities waiting for us at ACER, but these kinds of challenges have only inspired us for a long time.
The law does not provide that losses in the water supply network are included in the price, but everything will be analyzed
In some municipalities, water losses in the water supply network amount to 60 and 70 percent. Will these losses contribute to the price of water?
Reducing losses is a long-term process that requires a detailed analysis of each system individually. Montenegro is not the only one with problems with high losses. Water losses are a pronounced problem in other countries as well, both in the region and beyond. For example, water losses in Croatia amount to 49 percent, Macedonia 63 percent, Bulgaria 60 percent, Albania 67 percent, Romania 45 percent. The current legal solution does not provide for losses as an integral part of the methodology, but that option should not be excluded during the analysis of all the elements that should make up the price of water. Also, one of the options we are considering is the creation of incentives for water companies that reduce losses.
How much loss will be acceptable to RAE?
Existence of losses in the water supply system is inevitable. The reasons for the existence of large losses are different, and we need to identify to what extent they are a consequence of the technical condition of the networks, and what part refers to unidentified and unregistered connections. To solve the problem of losses, i.e. their reduction, it is necessary to determine the actual situation and the real reasons that caused the amount of losses in the system, and depending on the determined situation, plan measures and dynamics to reduce the rate of losses. To improve the condition of existing networks and to increase capacity, new investments are needed, and to detect and legalize illegal connections, a strong action by water companies that must be followed by a general consensus in society. Illegal connection is just a fancy term for a phenomenon more accurately called theft or embezzlement. If we leave the problem of network losses to the water companies alone, we will never solve it. We have to call a spade a spade if we want to face the problem head on. Therefore, an indispensable part of this long-term and demanding process will be the monitoring of the measures undertaken, that is, achieved by the water supply companies, as well as the comparison of data on losses with other similar water supply systems.
Bonus video:
