Regulatory environment
Austria
The new regulatory period in Austria started on 1 January 2013 for natural gas and on 1 January 2014 for electricity; both periods cover five years. A key factor in the regulatory model is the individual productivity factor, in other words: the individual cost cutting target of the company. The regulatory commission assesses EVN as an efficient company.
| Regulatory model for network usage tariffs for electricity and natural gas in Austria | Electricity (previous) | Electricity (new) | Natural gas (current) |
|---|---|---|---|
| Regulatory authority | E-Control GmbH | E-Control GmbH | E-Control GmbH |
| Start of the regulatory period | 01.01.2010 | 01.01.2014 | 01.01.2013 |
| Next regulatory adjustment1) | 01.01.2014 | 01.01.2019 | 01.01.2018 |
| Duration of the regulatory period | 4 years | 5 years | 5 years |
| Regulatory method | Revenue caps | Revenue caps | Revenue caps |
| Weighted average cost of capital (WACC) before taxes, nominal2) | 7.0% | 6.42% | 6.42% |
| General productivity factor3) | 1.95% | 1.25% | 1.95% |
| Individual productivity factor | 0.25% | 0.36% | 0.00% |
| Inflation4) | Annual adjustment | Annual adjustment | Annual adjustment |
| 1) Adjustment of WACC and productivity factors 2) The interest-bearing asset base is defined by the regulated asset base (RAB). The annual investments are added to the RAB in the following year. 3) Electricity: 50% of the achieved productivity increases are passed on to end customers during the regulatory period. Natural Gas: Gains from cost reductions remain with the company during the regulatory period. 4) The network operator price index consists of consumer (30%) and building price (40%) indices as well as wage increase index. | |||
Bulgaria
Household and commercial customers in the low-voltage network are supplied at regulated prices, while customers in the medium- voltage network have been able to select their own supplier since 1 July 2013. Based on 2013/14 energy sales, more than 20% of the market in EVN’s supply area is already liberalised. EVN is active in this customer segment through its trading subsidiary EVN Trading South East Europe EAD. EVN Bulgaria Electrosnabdjavane EAD, which previously supplied these customers in the regulated market, now also acts as a “supplier of last resort“ and services customers in the liberalised market segment who do not select another supplier or cannot receive electricity from their chosen supplier through no fault of their own.
The Bulgarian regulatory authority reduced the day and night tariffs for household customers by roughly 1.0% and 10.0%, respectively, as of 1 January 2014. Average end customer prices were raised slightly by 0.6% as of 1 July 2014, but electricity procurement costs for the electricity provider EVN Bulgaria Elektro- snabdjavane EAD increased substantially. At the same time, the granted margin of EVN Bulgaria Electrosnabdjavane EAD was reduced from 3% to 2%. Network tariffs were also reduced at the same time. The regulatory authority justified this intervention in the network tariffs with the economic advantage created by the reduction of network losses, a development that led to the offset of revenues from previous periods. In total, these price and tariff adjustments had a generally negative effect on EVN. The previous price reductions were only partly offset by a 9.7% increase in end customer prices on 1 October 2014. Rule violations of the latest tariff decision have not been annulled.
In 2013/14 EVN was confronted with administrative proceedings that were initiated by the local regulatory authority and are aimed at withdrawing the license for the Bulgarian electricity sales subsidiary EVN Bulgaria Elektrosnabdjavane EAD. EVN is using all available means to enforce its claims in this – in its view unjustified – proceeding.
Arbitration proceedings initiated in June 2013 at the International Center for the Settlement of Investment Disputes (ICSID), an institution established by the World Bank, are being actively pursued.
Macedonia
Legal regulations applicable as of 1 January 2014 require the unbundling (i.e. break-up) of the individual areas of business areas in utility companies in Macedonia. EVN met these requirements by establishing a sales company (EVN Macedonia Elektrosnabduvanje DOOEL) and a production company (EVN Macedonia Elektrani DOOEL) in 2012 in addition to the previously founded EVN Macedonia AD, which continues to operate as a network company.
The next liberalisation step in Macedonia started on 1 April 2014. This gives all large companies in the country free choice of their energy supplier. Based on 2013/14 energy sales, more than 40% of the Macedonian market is already liberalised. This liberalisation will be continued gradually over the coming years.
A tariff decision on 1 July 2014 raised average end customer prices in Macedonia by 3.5%. The network tariff included in this price, which is the relevant component for EVN in Macedonia, was increased by only a slight amount and remained below the expected level. Other cost elements related to the planned liberalisation steps were also not included.
| Regulatory model for network usage tariffs in Bulgaria and Macedonia | Bulgaria Electricity | Bulgaria Heat | Macedonia Electricity |
|---|---|---|---|
| Regulatory authority | State Energy and Water Regulatory Commission (SEWRC) | State Energy and Water Regulatory Commission (SEWRC) | Energy Regulatory Commission (ERC) |
| Start of the regulatory period | 01.08.2013 | 01.07.2014 | 01.01.2012 |
| Next regulatory adjustment | 01.08.2015 | 01.07.2015 | 01.01.2015 |
| Duration of the regulatory period | 2 years | 1 year | 3 years |
| Regulatory method1) | Revenue caps | Rate of return on capital | Revenue caps |
| Weighted average cost of capital (WACC) before taxes, nominal | 7.0% | 7.6% | 6.7% |
| Recognised network losses | 8.0% | 20.0% | 14.0% |
| Productivity factor | yes | yes | no |
| Investment factor2) | no | no | yes |
| 1) The revenue caps comprise the recognised operating expenses, the amortisation and depreciation as well as the recognised return on the regulatory asset base (RAB). 2) Annual review and approval of company’s investment plans by the regulatory authority | |||
Croatia
In preparation for its accession to the EU on 1 July 2013, Croatia adapted its energy law and transferred regulatory and market monitoring responsibilities to a regulatory authority. Natural gas prices for business customers have been liberalised since 2012, whereas the liberalisation of the natural gas market for household customers was postponed by lawmakers to 31 March 2017. Household customers therefore continue to purchase natural gas at regulated prices.
A new method to determine the price of new customer connections took effect on 1 August 2014. The customer’s contribution to the cost of a natural gas network connection is now dependent on the connection capacity. This change allows for more precise planning and provides greater transparency for customers as well as natural gas distribution companies.
