Price regulation

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Price regulation
Baltic Energy Regulatory Workshop June 6,
2003 Pärnu, Estonia

• Dace Bite
• Public Utilities Commission
• Latvia

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HIGHLIGHTS

• Electricity pricing
• Pricing of electricity generation
• Electricity transmission tariffs
• Electricity distribution tariffs
• Electricity sales tariffs
• Natural gas pricing
• Gas storage and transmission tariffs
• Gas distribution and sales tariffs
• Procedure of tariff setting

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Pricing of electricity generation

• Electricity purchase price from RER-E in
  accordance with Energy Law
• Electricity purchase price from CHPP with
  installed capacity less than 4MW defined by
  Cabinet of Ministers
• Electricity purchase price from CHPP with
  installed capacity more than 4MW is set by
  regulator in accordance with methodology
• Electricity produced by HPP on river Daugava
  regulator accepted tariffs in accordance with
  methodology
• Imported electricity bilateral agreements,
  purchased by Latvenergo
• Electricity produced by CHPP in condensation
  regime purchase in accordance with economic
  ranking principle

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SYSTEM PRICE IN ACCORDANCE WITH METHODOLOGY
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TRANSMISSION TARIFFS

• Depending on connection point (110 kV lines, 110
  kV distributers, 110/6-20 kV transformers) the
  consumers will pay
• Electricity transmission tariff
• Charge for installed power as LVL/kW

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DISTRIBUTION TARIFFS
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COMPONENT of SUPPORTED ELECTRICITY

• Costs over market price (import electricity
  price with coefficient 1,05 as an indicator on
  decrease of losses) divided by consumed
  electricity amount

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TARIFFS of SALES

• Tav Cav TTSO TDSO Csup
• Cav average electricity purchase price
• TTSO transmission tariffs for respective
  system user
• TDSO distribution tariffs for respective
  system user
• Csup price for sales service

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NATURAL GAS STORAGE AND TRANSMISSION SERVICES
TARIFFS

• Costs are separated for storage of gas for
  Latvias consumers, taking into account the
  proportion of stored gas for Russia and Latvia
• Costs are separated for transmission of gas for
  Latvias consumers, taking into account the
  proportion of transmitted gas for Russia and
  Latvia into the Russian supply pipeline
• One storage service tariff and one transmission
  service tariff is accepted

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NATURAL GAS DISTRIBUTION SERVICES TARIFFS

• High pressure tariffs, medium and low pressure
  tariffs
• 8 consumers groups between small consumers till
  0,5 thsd m3 and big industrial more than 126000
  thsd m3
• For every consumer group the differentiation
  coefficients are applied
• The transition period no longer than till
  01.01.2007
• The high pressure tariff will not be applied
• The differentiation coefficients for distribution
  should provide the difference for end users
  between the groups with consumption 0.5 25 thsd
  m3  and over 126 000 thsd m3 for the first tariff
  review cycle 1.3 and third 1.5

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NATURAL GAS SALES TARIFFS

• The fixed charge is calculated as a sales service
  tariff (sale costs divided by the number of
  subscribers)
• The tariffs for end users will depend on used
  amount of gas and heavy oil quotation prices in
  exchanges (FOR ARA)

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Procedure for tariff setting

• Regulator accepts the cost allocation models
  presented by companies and determines the rate of
  return
• Tariffs for the first year are based on the cost
  estimates submitted by the service provider
• Profit component in the capital costs is based on
  return on regulatory assets. The return is based
  on the average government bond rate of OECD
  countries (risk-free rate) plus a risk premium
  specified by the regulator
• Price cap is used for determining the tariffs in
  the following two years
• The next review cycle starts with another
  cost-based tariff determination

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