Statutory price regulation at the polish electricity market

On 28 December 2018 Sejm (lower chamber of the Polish Parliament) adopted the Act amending the Act on the Excise Duty and selected other acts (“Act”), which aims at temporary stabilization of electricity costs being incurred by final customers, in particular by implementing the following instruments:

  • imposing temporary restrictions on power supply companies as regards setting of electricity prices;
  • temporary „freezing” of transmission and distribution tariffs applied by electricity grid operators;
  • decrease in excise duty on electricity and in the rates of transitional fee incurred by final customers of electricity.

The Act entered into force with the effect from 1 January 2019 and it was subsequently amended by the act of 21 February 2019 (“First Amendment”), which entered into force on 6 March 2019 and the act of 13 June 2019 (“Second Amendment”), which entered into force on 29 June 2019.

First Amendment has introduced significant modifications consisting in (i) cancelling the obligation to temporary “freeze” the tariffs applied by the grid operators, (ii) amendment of the mechanism of calculating the electricity price applicable in 2019 and (iii) prolonging the deadline for signing amendments to the power supply contracts. Nevertheless, the Amendment maintained the obligation to apply the Maximum Price (as specified below) for the purpose of the settlements with respect to the period starting from 1 January 2019.

According to the Second Amendment, it is provided i.a. that: (a) the scope of entities entitled to benefit from the obligation to apply the Maximum Price would be limited as of 1 July 2019, (b) breach of the obligation to apply Maximum Price (as specified in Art. 5 Sec. 3 of the Act) would not be subject to administrative penalty and (b) certain types of end-users would be would be entitled to apply for grant due to electricity price increase with respect to the electricity purchased between 1 July and 31 December 2019, such grants to be given as the de minimis state aid.

* The detailed manner of calculating the compensation for the difference will be specified in the regulation of the Council of the Ministers.

OFFICIAL STATEMENTS OF THE INITIATORS OF THE ACT

 „The result of the proposed amendment shall be the reduction of the bills received by the individual users, entrepreneurs and self-government units by over PLN 3,5 bln, as well as maintaining the energy prices at the level from the first half of 2018.”[1]

  • „In addition, we would like to state very clearly that for the self-government units, for the firms, where private firms or private distribution firms have already worked out certain new contracts or agreed new contracts with the self-government units, we are preparing the mechanism of return to the prices which were applicable before 1 July 2018.”[2]
  • Thanks to this mechanism, where presenting the bill for the electricity to the customers, we will actually maintain the prices specified in the bills for the electricity at the level as of 2018 without the detriment to the energy companies – both the companies influenced by the State, as well as the private companies active in the electricity trading. In the proposed draft, the reference date, when the electricity prices for the customers have not been on the growth path yet, is 30 June 2018. Therefore, the draft act proposes the mechanism of modification of the currently concluded agreements, in order to ensure that the customers of electricity, who have concluded unfavourable contracts in the second half of 2018, are not adversely affected. The foregoing pertains also to the self – government units, who were first to indicate the loss and problems which affected them in connection with this aspect.”[3]
  • Moreover, the substantiation (explanatory memorandum) of the Act directly indicates that the Act addresses the problem of price increase observed „in tender procedures”, and that „implementation of the mechanisms included in the draft act will mitigate those negative effects for the final customers of electricity”.

 MAIN FEATURES OF THE INSTRUMENTS IMPLEMENTED BY THE ACT

  • temporary (apart from the mechanism of decrease in the rates of excise duty and transitional fee, the instruments specified in the Act refer only to electricity prices in 2019, and thus they encourage to implement other long-term measures of energy cost optimization);
  • introduced to lower the costs of obtaining the electricity in 2019 or 1H2019 only (the Act maintains the level of electricity prices as of 30 June 2018, taking into account the decrease in the excise duty);
  • automatically applicable as regards the decrease in the transitional fee;
  • requiring additional actions of the final customers in order to ensure the “stabilization” (decrease) of the electricity purchase price (submission of statements, conclusion of respective agreements with the seller, taking legal actions in order to enforce application of the Maximum Price in the settlements concerning the period starting from 1 January 2019).

LEGAL ACTIONS AIMING AT APPLICATION OF MAXIMUM PRICE

In order to enforce application of the Maximum Price, one should consider the following actions:

  • review of the power purchase agreements in order to determine actual Maximum Price, which should be applied in 2019;
  • provide the seller with the request for the immediate conclusion of the amendment to the power purchase agreement; and if there is no reaction of the seller
  • appropriate legal steps to accelerate fulfilment of the obligation to settle at the Maximum Price in accordance with the Act, i.e. for the periods from 1 January 2019 onwards – in cases where the Maximum Price can be defined (payments for the electricity together with respective refund statements (Pol. zastrzeżenie zwrotu) as regards the amount which exceeds the price which would be due if the Maximum Price was applied and then request for return of the overpayment.

We will be happy to support you with implementation of the abovementioned actions.

BUDGET AND FINANCING OF THE COMPENSATION MECHANISM

[Fund for the Payment of Price Differences] The estimated cost of the mechanism compensating the differences in the price of electricity in 2019 amounts to ca. PLN 9-13 billion (depending on the institution making the estimation; whereas the final cost may be even higher). The payments of the compensations (differences) will be made from the newly created special public fund called the Fund for Payment of Price Differences, whose authorising officer (Pol. dysponent) will be the Minister of the Energy, whereas the manager responsible for making payments – the company called Zarządca Rozliczeń S.A. (Settlement Operator). The Fund will be financed, in particular, from the resources obtained in result of completing auction of unused greenhouse gas emission allowances, which were allocated to the power generation plants. If the abovementioned funds prove insufficient, the Act provides for the possibility to use the funds collected at the account of the transitional fee and the renewable energy sources fee. [The National Green Investment Scheme] According to the Act, the National Green Investment Scheme will be credited with additional PLN 1 billion from the resources obtained as a result of the auction of unused greenhouse gas emission allowances allocated to the power generation plants. These funds will be granted, in particular, to the investments carried out by the DSO, as well as other investments concerning renewable energy sources or high-efficiency cogeneration units, investments related to the adjustment of power generation plants to the BAT requirements and investments in energy storage. SECOND AMENDMENT

 The Second Amendment results in the following:

  • [limited scope of entities entitled to benefit from the obligation to apply the Maximum Prices] As of 1 July 2019 onwards, only the limited scope of entities would be allowed to benefit from the obligation to apply the Maximum Price (e.g. households interconnected to the grid at the power supply point not exceeding 1 kV, micro- and small entrepreneurs, units of the public finance sector, hospitals), while the other entities (including entrepreneurs not qualified as micro- and/or small entrepreneurs, foundations, associations etc.) would be deprived of the right to purchase electricity at the price not higher than the Maximum Price;
  • [obligation to submit statement allowing to benefit from the Maximum Price] End-users intending to benefit from settlements at the Maximum Price after 30 June 2019 would be obliged to submit the statement on their status as beneficiaries – the said obligation would not apply exclusively to those end-users that purchase electricity for the purpose related to households;
  • [de minimis State aid for entrepreneurs other micro and small entrepreneurs] Entrepreneurs not qualified as micro- and/or small entrepreneurs would be entitled to apply for grant due to electricity price increase with respect to the electricity purchased between 1 July and 31 December 2019, such grants to be given as the de minimis state aid (maximum amount capped at EUR 200k gross within 3 years; applicable regulations provide for exclusions from the right to obtain the de minimis state aid, including fisheries, basic agriculture products etc.);
  • [obligation to reissue invoice] For the purpose of the amendments to the power supply agreements as discussed above, the entrepreneur that was selling electricity to given end-user as of 30 June 2018 would be „re-issue” the invoice within 7 days from receipt of the application for re-issuance of such invoice (most probably it refers to the copy of the invoice);
  • [no sanction for brach of obligation to apply Maximum Prices] The proposed bill of amendments assumes that breach of Art. 5 Sec. 3 of the Act (i.e. breach of the obligation to apply the Maximum Prices) would not be subject to any administrative sanction (sanction would apply in case of breach of obligation to set the price for 2019 at the level not higher than the Maximum Price ora amend the power supply agreement in order to reflect such price; however failure to apply such prices would not be subject to sanction);
  • [right to individual settlement of compensation for application of Maximum Price] The proposed bill of amendments assumes that the power suppliers would be entitled to apply for individual assessment of compensation for application of Maximum Price (in the scope of some additional unit costs related to sale of electricity) based on individual situation of given power supplier – the analysis and approval of costs would be allocated to the President of the Energy Regulatory Office.

According to Art. 6 of the Second Amendment, the Minister of Energy is obliged to issue the Regulation indicated in Art. 7.2 of the Act by 20 July 2019 which means – in case the said regulation is timely issued – that the deadline for conclusion of the contracts amending the power supply agreements (reduction of the electricity price for the period between 1 January 2019 and, respectively, 30 June or 31 December 2019) should lapse as of 19 August 2019.

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[1] Official position published at the website of the Chancellery of the Prime Minister of Poland, available at:

https://www.premier.gov.pl/wydarzenia/aktualnosci/premier-mateusz-morawiecki-wprowadzamy-rozwiazania-ktore-zapobiegaja.html.

[2] Speech of Mr Mateusz Morawiecki, the Prime Minister of Poland, at the 75-th Sejm plenary meeting – Stenographic report from the 75-th meeting of the Sejm of the Republic of Poland – page 5.

[3] Speech of Mr Krzysztof Tchórzewski, the Minister of the Energy, at the 75-th Sejm plenary meeting – Stenographic report from the 75-th meeting of the Sejm of the Republic of Poland – page 5.