The Competition Authority Approved Elering’s Annual Price Adjustment

The Competition Authority approved Elering’s adjusted network charges for 2012, which will be used to amend the tariff confirmed last year for the three-year period so that it reflects actual costs. The confirmed tariff will mean an increase in electricity costs for the average household of 4 euros a year, and the changes will come into force on 1 January 2012.

Under the unified methodology for calculating the electricity network charges used by the Competition Authority, and given the Authority’s position on the decision to confirm Elering’s network charges, Elering has the right to adjust the network charges once in each year of the tariff period. There are two permissible reasons for doing this – firstly, if the increase is driven by the three-year investment in fixed assets, and secondly, to reflect the actual costs and transmission volumes of the last 12 months. The tariff level is set using the formulae in the calculation methodology.

On Friday the Competition Authority gave its approval to the estimate that the adjustment will raise the average network charge from 1.05s/kWh to 1.13s/kWh. For the average Estonian consumer consuming around 2500 kWh a year, the change in the tariff means that electricity bills will rise by around 4 euros a year.

Following the calculation methodology, the network charge was adjusted to reflect the real data for the last 12 months, August 2010-July 2011, for electricity transmission volumes, network losses and other indicators that are beyond Elering’s control. The analysis clarified how the revenues from auctions of transmission capacity on the Estonian-Latvian border should be reflected in the tariffs, while the revenues from the transit of Russian electricity were adjusted with the consumer price index, and a new cost of capital was calculated using the Competition Authority’s guidelines for calculating the weighted average cost of capital.

As changes in Elering’s tariff have an impact on the costs of other network operators, the Competition Authority uses a defined formula to adjust their network charges to match the change in the tariff. Estonia has a total of around 35 network operators, of which the largest is Eesti Energia Jaotusvõrk.

Elering is the Estonian Transmission System Operator, whose main duty is to ensure high-quality supplies of electricity to consumers at all times. To achieve security of supply, Elering maintains and develops the national transmission grid and international connections. Elering controls the Estonian electricity system in real time, ensuring the operation of the transmission network, and the balance between production and consumption.

More information on the tariff adjustment can be found here (only in Estonian).