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DTe: Method for Adjusting Electricity Prices

On 27 November 2002, the Secretary of State for Economic Affairs determined policy rules in accordance with which the Office for Energy Regulation (DTe) may adjust electricity prices for captive customers, if necessary, at most four times a year. This adjustment occurs if developments in the liberalised section of the market or the level of electricity procurement prices give cause for this, for instance as a result of an increase in fuel costs. The possibility of adjusting electricity prices allows problems to be avoided, such as those which occurred in California in the summer of 2001. In California, the electricity procurement prices paid by traders reached extreme heights, partly due to the hot summer, while a ceiling applies to sales prices, as a result of which the price increases could not be passed on to end-users.

Adjustments are made to the maximum electricity prices through adjustments to the x factor. To do so, DTe measures price trends a month prior to the quarter to which the x factor relates. On the basis of these data, DTe then decides whether the x factor should be adjusted. DTe publishes these data on its website two weeks prior to the quarter in question. Not every change in prices results in an adjustment being made. The price indicator takes into account a bandwidth determined beforehand, within which prices may fluctuate.

The first measurement according to this method took place on 1 December. This measurement showed that prices had increased during the past period, but provided insufficient grounds for adjusting the x factor, since the deviation remained within the bandwidth. This means that the maximum electricity supply prices for the first quarter of 2003 will remain the same as before, namely 10 percent lower than in 2002. The next measurement will take place on 1 March 2003.

DTe imposes the so-called x factor on electricity companies to stimulate efficient operations. This price cap amounts to 10 percent per annum and applies to all electricity supply companies. In 2004, all electricity customers will be free to choose their own suppliers and, in principle, DTe will not determine maximum prices for the supply of electricity after this date. DTe will continue to monitor the prices charged to small consumers and, if necessary, will intervene.