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One Year, Three Energy Price-Cuts and Six Chairmen in Bulgaria – Is This Possible?

[This is a special guest post written by Atanas Georgiev, Assistant Professor at Sofia University, Bulgaria. After my last blog post missed the mark on the situation in Bulgaria I wanted to call in an expert for readers of The Energy Scee  who could provide an accurate overview of the goings-on in the country. Atanas is kind enough to provide this concise summary of recent events in Bulgaria.  — Michael LaBelle, The Energy Scee]

The newly-elected chairman of the Bulgarian national energy regulatory agency, Mr. Boyan Boev, announced on December 20, 2013 during his first press-conference an unexpected “gift” for local consumers – a single-digit percentage price-cut to be implemented from January 1, 2014. The draft decision was published by the State Energy and Water Regulatory Commission (SEWRC/DKEVR) in the late afternoon on the same day and was scheduled to be discussed with the stakeholders on the next workday – December 27. After the discussions then, the decision was taken by DKEVR on the next (and last for the year) workday – December 30.

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The chairman’s hot chair

Mr. Boev is the 6th (sixth!) Chairman of the regulatory commission, who was in charge during 2013. Angel Semerdjiev was the head of the regulatory body from 2009 to the end of January 2014, then Mr Andon Rokov headed the regulatory body in an interim period as an acting chairman. The next in charge, Ms Yuliana Ivanova, had a short official term, and after alleged lack of experience, she also resigned. The next Chairman – Ms Evgenia Haritonova, was the next head of the body, but was replaced by Ms Angela Toneva right before the second price cut. Ms Toneva resigned in the beginning of December just before the latest price cuts were announced. In mid-2013, the other 6 member of the board of DKEVR resigned together with Ms Haritonova, and one of the new members resigned in December with Ms Toneva. If you lost track on the way, the recap shows that the 7-member regulatory board had 17 different members during some time in 2013, and 6 of them chaired the commission for some period…

Of course, this is not so strange in Bulgaria, because the new socialist government managed to replace almost all the board members and CEOs of all state-owned energy companies shortly after coming into power at the end of May 2013. The incumbent power public supplier NEK, for instance, has 4 different CEOs throughout 2013, and 12 different members in its 3-member board. This is not so strange as well, because NEK had 10 different CEOs and 24 different board members for the period 2008-2013.

Price-cuts in three steps

Throughout the whole year 2013, the Bulgarian energy sector was in turmoil. The end prices of power utilities have been diminished three times – in March, August, and in late December, as a result of the populist moves by two of the three governments, which ruled the country. In order to evaluate these moves, we need to put them in the broader energy-and-politics context of the year:

  • On January 27, groups of consumers protested their high electricity bills in the Southwestern towns of Sandanski and Blagoevgrad in front of the local DSOs (CEZ Distribution Bulgaria) offices. The consumers claimed that their bills are several times higher, due to longer metering periods and the colder weather;
  • On January 28, the head of DKEVR Angel Semerdjiev resigns, after he was asked to by the PM Boyko Borissov. The law does not allow “firing” of the regulatory agency chairman, but the message is that he was “replaced” because of the late implementation of the Third Energy Package in Bulgaria;
  • On February 10, thousands of citizens protest in more than 15 large towns in Bulgaria participated in a “national protest against monopolies”, demanding diverse goals: from individual contracts with heating utilities to the nationalization of the DSO grids (currently owned by CEZ, EVN, and Energo-Pro, the latter acquired it from E.ON after it sold its Bulgarian assets). The evening before the protest witnessed the torching of 2 EVN service vehicles in Plovdiv;
  • On February 12, protesting citizens in Sofia attach the building of DKEVR with tomatoes, fireworks, etc., demanding lower energy bills. The event was organized by nationalist parties – VMRO and Ataka;
  • On February 17, a total of about 100 000 protesting citizens marched in over 35 towns. Many offices of DSO companies are attacked with stones, bottles, eggs, and vegetables;
  • On February 21, the government of the rightist party GERB with PM Boyko Borissov resigned , after clashes between police forces and protesting citizens and a self-torching of a young protesting citizen in the Black Sea town of Varna. The interim government, appointed by the President Rossen Plevneliev, tried to balance the sector through consultative councils and proposed a change in legislation in order to finance rising subsidies for renewables with the revenues from carbon emissions, among other measures;
  • On February 28, the enacted changes in the Energy Law allowed the regulatory agency to change energy prices at any time during the price and regulatory period, the former being July 1 – June 30 prior to the change. The next week, DKEVR voted the first price cut for the year – about 7% on average for end consumers;
  • On July 29, DKEVR decided to cut end-user prices from August 1 with about 5%, after a prolongation of the price period with one month and amid suggestions from the Government and the Parliament, that “there is a reserve for about 5% price cut”;
  • On November 29, the Parliament suggested a tax on renewables, amounting to 20% of their revenues, is the proper way to balance costs and revenues. The change was enacted with the State Budget Act for 2014.

Cutting technical losses at large

The common trait of all price cuts is that they balance revenues and costs mainly in the system of the national incumbent NEK, while depriving DSOs from their revenues. Part of the changes also affected power producers – the nuclear plant, the large TPPs, and cogeneration plants in heating utilities and on industrial sites. An easy way to cut grid distribution prices has been the “innovative” way of administrative diminishing of the allowed percentage of “technical losses”. The first cut came in March, lowering allowed grid losses from 15% to 12%. Then, in the end of July, the second price-cut was made possible through the additional diminishing of allowed DSO technical losses – to 10% (for CEZ and EVN) and 11% (for Energo-Pro). The final decision in 2013 additionally diminished these numbers – to 8% and 9% respectively, or 2 percentage points for each of the DSOs.

During this regulatory turmoil, the government tries to defend its position in an arbitrage started by Atomstroyexport on the decisions of the previous government and parliament to freeze the NPP Belene project. However, this is not a hinder for the new government to start negotiating a new unit at the existing NPP Kozloduy with the American company Westinghouse. The large-projects scenery also includes a final contract with Gazprom on the Bulgarian section of South Stream, which was scolded, and then taken over for re-negotiation, by the EU energy commissioner Guenther Oettinger. The 100% state-owned Bulgarian Energy Holding, which is owner of the state-owned energy companies, somehow managed to take a 500-million EUR obligations loan in the end of October, just days before signing a deal with Gazprom for additional 620-million EUR loan, related to the construction of South Stream.

The best is yet to come

It appears that 2014 will be not quite less tense in energy terms for Bulgaria than the previous year. Still there is a large deficit in the regulated electricity prices mechanism in Bulgaria, caused by rising renewable energy subsidies and generous investments in non-regulated businesses by state-owned incumbents; the government is not stable and preliminary parliamentary elections may be expected anytime soon; the main reason for the mismatch between utility bills and consumers’ income (namely – the low income) is not going to change as well. All these factors cause a nightmare for any analyst, who tries to predict the events in Bulgaria even for a 1-month horizon.

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 This guest post is written by Atanas Georgiev who is Assistant Professor in the Faculty of Economics and Business Administration of Sofia University, Bulgaria, where he teaches Regulatory Economics and Utilities Management to grad students. Atanas is also a lecturer at the “Energy Diplomacy” courses, organized by the Diplomatic Institute in the Bulgarian Foreign Affairs Ministry. He is the chief editor of both the Bulgarian “Utilities” magazine and the online portal www.publics.bg, as well as a frequent author of articles in other energy-related publications. Atanas graduated from the “Economics and Management in Infrastructure, Energy, and Utilities” program at Sofia University and later visited trainings on Energy Pricing in the Public Utilities Research Center (Florida, USA), EU Energy Law at the Florence School of Regulation (Italy), Infrastructure Economics at the Turin School of Local Regulation (Italy), Energy Security at the Masaryk University (Czech Republic), etc. He is member of the International Association for Energy Economics and of the Scientific Committee at the Turin School of Local Regulation.