Brief description of the sector
According to the data of Central Statistical Bureau, in 2002 the consumption of natural gas was 1572 million m3, that is, 0.5% more than in the previous year.
In 2002 electricity consumption in Latvia grew by 3.5% and was 5126 million kWh. Total electricity market volume in Latvia in 2002 was 5994 million kWh of which 37% was imported electricity.
Regulated enterprises
In accordance with the Cabinet of Ministers regulations No.297 “Regulations on types of regulated public services” of July 3, 2001 generation of electricity is regulated in plants with capacity over 1 MW. Small electricity generators (for example, small hydropower plants) are not required to have Commission’s license. Other regulated activities are electricity transmission (with 110 kV voltage and higher), electricity distribution (with voltage above 1 kV) and electricity sales (with sales volume above 4000 MWh annually).
In 2002 43 licensed electricity supply enterprises operated in Latvia: state JSC “Latvenergo” (see Box 2) having licenses for electricity generation in hydroelectric plants and thermoelectric plants, electricity transmission, distribution and sales, and other enterprises – having 36 licenses for combined generation of heat energy and electricity in CHP plants, 14 licenses for electricity generation using wind power generators, one license for a small hydropower plant, 11 licenses for electricity distribution and 10 licenses for electricity sales.
In natural gas supply sector natural gas transmission through pipelines, natural gas storage for sales, natural gas distribution and natural gas sales are regulated. In liquefied gas supply sector liquefied gas storage and filling into containers, cisterns or gas-cylinders intended for sales, liquefied gas distribution and liquefied gas sales in any type of container are regulated.
There is one licensed company in the natural gas supply sector – JSC “Latvijas Gaze” (see Box 3). In the liquefied gas supply sector there are 69 enterprises having 69 licenses for liquefied gas sales, 43 licenses for liquefied gas distribution and 31 licenses for liquefied gas storage and filling.
Licenses issued in 2002
In the electricity sector the Commission granted three licenses for combined heat energy and electricity production in CHP plants, one license for electricity generation in hydropower plant and four licenses for electricity sales.
In the liquefied gas supply sector the Commission granted one license for natural gas sale, 10 licenses for liquefied gas sale, two licenses for liquefied gas distribution and two licenses for liquefied gas storage and filling.
Methodologies
In 2002 the Commission elaborated several methodologies, taking into account the opinions of service providers and other involved parties expressed in the public hearings.
On August 20, 2002 “Tariff calculation methodology for the heat produced in CHP plants and for the electricity produced in CHP plants with capacity above 4 MW for 2002–2003 heating season” was approved by the Commission’s decision No.80. The approbation of the methodology was performed in cooperation with generating companies (CHP plants) resulting in an approval of improved “Tariff calculation methodology for the heat produced in CHP plants and for the electricity produced in CHP plants with capacity above 4 MW” in 2003.
On December 11, 2002 “Methodology for determining the fee for connection to the electricity network” was approved by the Commission’s decision No.145. Compared to the previous practice, this methodology proposes new proportion for cost distribution – now the user covers 60% and supplier – 40% of the costs of connection installation.
In 2002 the following draft electricity tariff calculation methodologies were prepared:
- “Tariff calculation methodology for electricity generated in hydropower plants”;
- “Electricity transmission network service tariff calculation methodology”;
- “Electricity distribution network service tariff calculation methodology”;
- “Tariff calculation methodology for electricity sales to end-users”.
These methodologies are based on a common approach using the principles of setting price cap. Price cap method is based on setting price ceilings taking into account inflation and the efficiency level of each regulated service. The developed cost allocation model ensures transparent price setting for each technological stage of the service provision process (electricity generation, transmission, distribution, and sales). It allows separation of service costs and eliminates cross–subsidies. The separation of technological stages and distinct services corresponds to the European Union directives aiming at promotion of competition in the electricity sector.
Development of natural gas supply tariff calculation methodologies required extensive analytical work to explore the methodologies used in other countries and to improve the natural gas tariff calculation methodology. As a result the Commission prepared new natural gas tariff calculation methodologies – for setting of natural gas storage, transmission, distribution service tariffs, as well as sales tariffs.
Methodologies contain a requirement to separate costs emerging in every stage of natural gas supply – thus creating a mechanism to group costs clearly in accordance with the requirements of Article 13 of the European Parliament and Council June 22, 1998 Directive 98/30/EK concerning common rules for the internal market in natural gas.
Tariffs
Electricity and natural gas sales tariffs in 2002 remained at the previous year level (see Box 4 for natural gas tariffs).
Tariffs for heat energy generation and electricity have been approved for several CHP plants.
The Commission’s decision No.64 "On heat energy tariffs for the production facilities of State JSC „Latvenergo” subsidiary „Rigas termoelektrostacijas”" of June 20, 2002 sets the following tariffs effective till October 1, 2003:
Riga TEC-1 8.41 lats/MWh
Riga TEC-2 7.64 lats/MWh
The Commission’s decision No.95 "On heat energy production tariff for Ventspils city municipal LLC "Parventas siltums"" of September 25, 2002 sets the heat energy production tariff at 13.48 lats/MWh.
Commission’s plans in the energy sector for 2003
At the beginning of 2003 natural gas and electricity supply tariff calculation methodologies prepared in 2002, as well as the updated “Tariff calculation methodology for the heat produced in CHP plants and for the electricity produced in CHP plants with capacity above 4 MW” were approved.
In 2003 it is planned to introduce the accounting and separation of costs envisaged in the methodologies, apply the regulation principles included in the methodologies, as well as test how their functioning in practice, updating the methodologies, if necessary.
Due to the higher natural gas tariffs from 2003 because of the changes in heavy fuel oil quotation in the world market and the approval of JSC “Latvijas Gaze” tariff proposal, it is expected that licensed CHP plants having natural gas as fuel will request electricity and heat tariff changes, so it will be necessary to perform the analysis of corresponding tariff proposals.
Since electricity from electricity plants using renewable resources is purchased at supported prices, the impact of renewable resources on the average electricity tariff will be assessed.
In accordance with the Cabinet of Ministers regulations No.326 “Regulations on eligible electricity customers” of September 21, 1999, the impact of eligible electricity users on electricity transmission and distribution network service tariffs, as well as other electricity user tariffs will be evaluated.
Regulations on the necessary information to monitor the fulfillment of the license conditions of the regulated enterprises and market analysis in the energy sector will be prepared as ongoing improvement of the legal basis. Visits will be made to the enterprises as part of their supervision to check the compliance with license conditions, and the information submitted by the licensed enterprises will be analyzed.
Box 2
State JSC “Latvenergo”
In 2002 Latvenergo power plants generated 3 668.9 GWh of electricity representing 58.1% of total electricity consumption in Latvia and 92.5% of total electricity generation in Latvia.
In 2002 Latvenergo hydropower plants generated 2 431.3 GWh which is 66.3% of total electricity generated by Latvenergo, but Riga TES CHP plants generated 1 237.5 GWh of electricity or 33.7% of total electricity generated by Latvenergo and 2 985.5 GWh of heat energy representing about 70% of the heat generated for Riga district heating system.
In 2002 the amount of electricity consumed by Latvenergo customers increased. The enterprise sold 5 046 GWh of electricity – by 3.5% more than in 2001. The largest electricity consumers were industrial users accounting for 1 613 GWh.
Latvenergo did not change tariffs in 2002 and they remained at the previous four year level.
In 2002 Latvenergo continued the asset renewal and development program investing 67.8 million lats.
Latvenergo subsidiary Tehniskais centrs (TC) provides communication services for Latvenergo subsidiaries and in 2002 it received a license for the provision of public telecommunications services.
(Based on unaudited information provided by the company)
Box 3
JSC “Latvijas Gaze”
The privatization of JSC “Latvijas Gaze” was completed when the results of auction of the remaining 3% of JSC “Latvijas Gaze” stocks were confirmed in March 2002. Thus JSC “Latvijas Gaze” became a 100% privately owned company, and it continues to be quoted on the official list of Riga Stock Exchange.
Thanks to the investment policy of JSC “Latvijas Gaze” and attraction of new customers, the natural gas sales volume in the household sector has grown from 89 million m3 in 2001 to 98 million m3 in 2002. However, it constitutes only 6.3% of the total volume. Six largest industrial customers consume about 60% of the total natural gas sold. The average natural gas sales tariff in 2002 was 60.46 lats/thousand m3.
The net turnover in 2002 reached 106.4 million lats – by 1% more than in 2001. As a result of reorganization of the structure of JSC “Latvijas Gaze” the number of employees decreased from 3737 in 1994 to 1728 in 2002 (1256 in the natural gas system and 472 in the liquefied gas company).
In 2002 the old compressor building in Incukalns underground gas storage facility was removed and the preparation of the construction site was started for constructing a new building and installing reserve compressors in 2003-2004.
Since 1997 more than 33.2 million lats have been invested in the development of the company. In 2002 205.1 km of new gas pipelines were built.
(Based on unaudited information provided by the company)
Box 4
Natural gas tariff proposals considered
In 2002 the Commission considered three JSC “Latvijas Gaze” natural gas tariff proposals.
1. JSC “Latvijas Gaze” submitted natural gas tariff proposal on November 7, 2001, proposing to increase tariffs for industrial users on average by 7.8%-10.3% and to set natural gas price for households at 0.06 lats/m3 (20% increase) from April 1, 2002. After evaluation Commission rejected the proposal on March 4, 2002.
2. On August 26, 2002 JSC “Latvijas Gaze” submitted a natural gas tariff proposal requesting to approve one maximum natural gas tariff – 78.13 lats/thousand m3 (maximum increase by 17%) for all industrial and commercial users and to set natural gas tariff for households at 0.06 lats/m3 (20% increase) from January 1, 2003. The Commission’s board rejected the tariff proposal on September 4, 2002 on the basis of the norms of the law “On regulators of public services”, as the proposal had not been prepared according to the methodology.
3. On September 19, 2002 JSC “Latvijas Gaze” submitted a natural gas tariff proposal requesting to approve one maximum natural gas tariff – 78.13 lats/thousand m3 (maximum increase by 17%) for all industrial and commercial users and to set natural gas tariff for households at 0.06 lats/m3 (20% increase) from January 1, 2003. The proposal was evaluated within the time frame set in the law and was rejected on January 15, 2003.
After approval of new natural gas tariff methodologies in January 2003 and separation of costs as specified in the methodologies, JSC “Latvijas Gaze” submitted well-founded natural gas tariff proposal envisaging gradual tariff increase by 16.5% over three years. Commission approved this proposal in April 2003.
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