Can tariffs be more consumer-tailored?
30 September, 2010
Can tariffs be more  consumer-tailored?

Competence of Georgian Regulatory body for electricity, gas and water will enhance starting this fall. The Regulatory body that had a right to review consumer tariffs only after  monopolist companies submitted an official application, is authorized to review consumer tariffs at its own discretion as of September, 2010. Some experts assure that regulatory body was empowered to initiate tariffs-review even before the amendment but it was eluding the responsibility in order to woo companies.


Consumer tariffs for gas, electricity and

water can become more consumer-oriented in Georgia. Georgian National Energy, Gas and Water (GNERC) Regulatory Commission is mandated to initiate tariff review at its own discretion starting September of 2010 due to amendment to the law made in July of this year.


Before this amendment review of tariffs can be initiated only by [monopolist] companies operating at gas, electricity and water sectors before, GNERC officials say. However companies being interested in their financial profit have been appealing by tariff-increase applications up to date, none of them ever asked to reduce tariffs. Only regulatory body that is obliged to regulate monopolist companies operation at the market could act as a consumer-oriented structure and raise the issue of tariff-reduction. But due to legislative gap the regulatory commission was not mandated to initiate the tariff-review issue. And irrespective GNERC was permanently hailed to review consumer tariffs specifically in electricity [that enjoys differentiated tariffs leading to non-transparency and confusion] it did not address to tackling the issue. The explanation was it could not initiate the tariff-review.


However the regulatory body had due competence in fact, Davit Ebralidze, ex-energy-Ombudsman, assures. It was just biased toward companies [enjoying high profit margins] and did not activate its full competence to protect consumer in due manner. 
The point is that companies regulated by GNERC had an obligation to submit their financial accounts at GNERC during each year and the regulatory body is scrutinizing the papers to find out whether or not the company complies with the profit-and-loss margins set out by GNERC. “Based on its findings, GNERC could streamline tariffs and revise them if necessary”, Ebralidze said. “The legislation did not prohibit that.” 
GNERC counters that the legislation did not allow them to initiate the tariff-revise even if they saw in financial accounts that a company violates the officially fixed profit/loss margins. And they had to wait till companies would find apt to submit a tariff-revise application at the regulatory commission. That’s why the law was amended and GNERC got mandated to initiate the tariff-revise [if finds necessary] and be no more dependent on company’s good will.
“If in annual financial papers [submitted at GNERC] we see that a company is at loss or enjoys extra profit due to objective [not subjective reasons like bad management] reasons the new amendment empowers regulatory commission to ask the company to submit an application for tariff revise, then commission researches of the reasons for both extra profit and loss and redistributes the tariffs in accordance with the new findings,” Gocha Shonia, Head of Tariffs and Price Division at GNERC, told Georgian Journal. “Before this amendment we lacked a legal tool to initiate a tariff-revise issue even if we witnessed in the financial accounts that company enjoys higher [than established] profit or is at loss. There was a legislative gap and the recent amendment filled it.”


However GNERC has not used this right as of yet as the amendment entered into effect  this September, but it promises to activate its enhanced competence in future.
On the other hand GNER works on creation of  unified methodology of calculation tariffs in electricity system. The new methodology idea is to introduce long-term tariffs adopted in all developed countries globe over.  According to current law, tariffs in gas, electricity, and water sectors must be reviewed each year. GNERC proposes to revoke this obligation in electricity as much as it is the most developed and matured sector compared to gas and water in Georgia, and introduce tentatively 3-year-long tariffs. The long-term tariff system can spare consumers from currency depreciation and inflation-related risks that can affect tariffs in short-term, and will force companies to improve management skills and make better long-term calculations.


The new tariff methodology is under working process at the moment and is supposed to enter into effect starting 2011. According to Shonia, GNERC considers different approaches now based on the best worldwide practice, and international experts are cooperating with Georgian peers. 
“This new system of tariff calculation is very fresh and needs accomplishment, we think to introduce the unified tariff system only for companies operating in network service including distribution and transmission lines for these two are natural monopoly sectors unlike electricity generation sector that is more or less competitive thanks to limited tariffs. There are several market players at generation market and better competition among licensees [electricity producers] that enables consumer to have a choice,” Shonia said adding that gradually as the gas and water sector will develop as much as the electricity sector, GNERC will  be discussing adoption of new unified tariffs system in gas and water sectors as well.

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