PPC rate rise can open market

The government is determined to handle the hot potato of electricity rates in order to resolve, once and for all, the problems associated with the liberalization of the power market. This determination was highlighted by the request by the Public Power Corporation (PPC) to increase rates by an average of 21.7 percent as of December 1, and the government’s subsequent official and unofficial statements. «The proposal of the Regulatory Authority for Energy (RAE) will be examined, bearing in mind the company’s operating costs and the lowest possible burden for consumers,» said government spokesman Theodoros Roussopoulos. Statements made by Deputy Development Minister Stavros Kalafatis in Parliament were in a similar vein, while ministry sources told Kathimerini that the minister will accept the proposal to be submitted by RAE. The proposal is expected to be submitted this week and – according to well-informed sources – adopts the level of rate increases requested by PPC, but not with immediate effect. Instead they will be implemented over a three-year period. The first installment of rate hikes will concern increases of 5 percent for low domestic consumption and up to 10 percent for high domestic consumption, 8 percent for medium-voltage industrial consumption and 10 percent for high-voltage industrial consumption. The proposals and statements by all authorities involved last week have made it clear that for the first time they are looking seriously at an issue that until recently had been taboo due to the political cost entailed, and in effect constitutes the main reason for the distortions and lack of competition in the electricity market. It was PPC which raised the issue, making for the first time since its admission to the stock market a demand not only for an increase in rates but also for their harmonization with market rules. PPC asked for rates that reflect the operating cost of each enterprise, incorporating the harmonization issue into the main parameter of its new strategic plan. The company highlighted the problem in the strategic plan that PPC put before institutional investors, presenting data which show that the whole schedule of rates is subsidized by an average of 25 percent and asking the relevant ministers to focus on this very real problem, which is also connected with the poor financial state of PPC and the lack of any real liberalization of the power market. Sins of the past The president and CEO of PPC, Takis Athanassopoulos, showed he has fully understood what the previous administrations of the power utility, from 2001 onward, had not: namely that PPC has nothing to fear from competition but will instead gain from it as it will be able to rid itself of the burden of subsidized services that add up to 400 million euros per year to its costs, while also streamlining its production portfolio which includes a mix of fuels that any private investor would envy. Since 2001, when the first attempt to liberalize the power market was made, the PPC, the RAE, investors and relevant ministers have known all too well and have privately acknowledged that liberalization is not possible while keeping PPC rates low. PPC produces very cheap electricity, thanks to lignite, and sells it even cheaper, below cost, in the name of social policy. This in itself leaves no scope for the entry to the market of private investors, which is why so far not a single private electricity production facility has been built, with the sole exception of the Hellenic Petroleum (HELPE) plant in Thessaloniki, which was a clear political choice. Even though the causes of the problem were well-known to everyone, they had been swept under the carpet and for years investors, politicians and the managers of groups and companies sought alternative ways to achieve liberalization, which, however, were completely ineffective and even dangerous, as they had a negative impact on the capacity of the country’s electricity system. Things got worse when, two years ago, the combined-cycle plant of HELPE was completed and was supposed to start operating. It was then ascertained that it could not operate for even one hour out of 24, as it was simply unable to sell its product to the grid at a competitive price. It was then decided to change the way that the system marginal price (SMP) is calculated. The calculation of SMP relates to the price of electricity set by the grid each day and at which producers sell, including PPC in its capacity as producer, and then is purchased exclusively by PPC in its capacity as electricity trader, to supply all consumers as the law provides. This change led to a rise in the sale price of electrical energy and therefore to a rise in the acquisition price by PPC, the trader, which was obliged by law to sell power to consumers at a much lower rate. This dubious way of calculating SMP created expectations of profits and prompted the interest of major domestic and foreign groups, but it sent PPC to the verge of financial ruin. This once again requires a solution and for the first time there is a clear intention to sort things out and redefine the notion of «electricity market liberalization,» placing it on a more solid basis. The start of this new approach has been signaled by PPC, which has assumed the role of the «honest player,» and at the same time a strong player in the face of the competitors that will emerge, as ensured by its new business plan. This plan, apart from the issue of breaking the company up into subsidiaries which has divided experts, is redefining the entire spectrum of the company’s activities according to the new conditions and prospects. It accepts that by 2014 PPC will have lost some 30 percent of its market share. However, this will allow the corporation to regain its health, through better services provided to consumers. Crucially, it will relieve it forever of the burden of its social character, which is not compatible with the profile of a listed company. PPC now appears ready for the second and most important step since its listing on the Athens bourse, as it pursues its transformation into a purely competitive enterprise. Its success will largely be determined by the government’s attitude. But at least Athanassopoulos has presented the problem in the context of the new business plan, proposed solutions and highlighted some serious dilemmas.