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  • Ukrenergo tariff level for 2019 fails to cover all the company’s expenses

    Today the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) approved the annual tariff for 2019 for SE NPC Ukrenergo at the level of 5.93 kop./kWh. At the same time, unfortunately, the Regulator failed to take into account a number of the company’s comments and reduced the average annual tariff by 20.8% compared with what was proposed by the company without market components (Ukrenergo’s draft tariff was 7.486 kop./kWh). This circumstance may complicate the implementation of the main functions of Ukrenergo next year.

    In addition, the Regulator failed to include in the tariff a market component at the level of 9.548 kop./kWh, stipulated by the Law of Ukraine “On Electricity Market” for the sale and purchase of electricity to compensate for technological losses and purchase ancillary services.

    The Commission reduced the payroll fund expenditure in the composition of Ukrenergo’s tariff from UAH 2.088 billion (the amount proposed by the company) to UAH 1.869 billion.

    The tariff fully excluded the expenses for maintenance of the State Inspectorate for Energy Supervision since in accordance with the Law of Ukraine “On Electricity Market”, this division of Ukrenergo will operate independently next year as a central executive authority. However, the State Inspectorate for Energy Supervision has not received the respective financing from the state budget yet, so Ukrenergo has to finance its activities until it starts to operate as a fully-fledged state executive authority, including in terms of expenses for salaries for the Inspectorate’s employees. To ensure this, the draft tariff of Ukrenergo included the necessary funds for the first three months of 2019.

    In addition, the NEURC left depreciation deductions of Ukrenergo unchanged at the level of 2018, while the company substantiated their increase in 2019 by 55% (from UAH 687 million to UAH 1.069 billion).

    In 2019, Ukrenergo has to commission capital construction facilities, as well as modernise and reconstruct existing ones, in the total amount of UAH 10.5 billion. These projects include construction of SS 750 kV Kakhovska, OHL 330 kV Novokakhovska – Khersonska, OHL 330 kV Novokakhovska – Ostrovska, as well as the projects of reconstruction and modernisation of overhead power transmission lines and substations in the total amount of UAH 5.6 billion. Such significant volumes of commissioning of fixed assets would allow the company to reach the depreciation level in the amount of UAH 1069 million as proposed in the tariff structure for 2019. However, the Regulator failed to take this factor into account and reduced depreciation by UAH 382 million. It is worth noting that since depreciation deductions constitute a basis for financing the investment programme, their reduction will definitely have an impact on its implementation.

    “The Company responsibly accepts the Regulator’s decisions and understands all complexities of the process of approval of the tariff and the state of affairs within the power sector. At the same time, we hope that during the nearest inspection of the NEURC to be held at Ukrenergo in January, the Regulator will pay attention to all arguments proposed by the company regarding the financing of certain expenditure items in 2019. This analysis will form a basis for the adjustment of the tariff in the first quarter of 2019,” said CFO of SE NPC Ukrenergo Serhii Yermak during his speech on the draft tariff discussion at the NEURC.

    “As for the financing of the State Inspectorate for Energy Supervision, unfortunately, the Commission has no legal grounds to include the expenses for its maintenance in the tariff of Ukrenergo. However, we will revise this decision as soon as such grounds emerge. In addition, after considering the actual indicators of depreciation in 2018, the licensee may submit its proposals to the Regulator regarding the tariff’s adjustment. We will further approve a substantiated decision,” said Head of the NEURC Oksana Kryvenko.

    Reference:

    The average annual tariff of Ukrenergo in 2016 amounted to 5.4 kop., in 2017 – 7.1 kop., in 2018 – 4.9 kop. At the same time, the company has always expressed its understanding of the tariff policy and the necessity of restraining an increase in the wholesale electricity market prices. This was the reason why the company initiated a decrease in its tariff by 10%. As a result, the NEURC reduced the tariff of Ukrenergo for a respective year by 30%.

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