The Electricity Authority of Cyprus (EAC) may announce its final decision today (20/2) on whether to persist with its request for a 6% increase in electricity rates during the discussion of the matter at the Parliamentary Committee on Energy.

It is recalled that during last week's discussion in the same Committee, EAC requested a few days' extension to examine its financial data, announcing that its final decisions would be revealed today or at the latest within this week.

As the Chairman of the EAC's Board, Giorgos Petrou, stated last Thursday (15/2), the Economic Committee of the Authority would convene to review the financial data of the Organization and to confirm, change, or cancel the request for a 6% increase, with a decision possibly given to the Cyprus Energy Regulatory Authority (CERA) within this week.

In a memorandum submitted to the Parliament, EAC, explaining the reasons for submitting a request to CERA for a 6% increase in electricity prices and the procedures followed, warns that it may fail to implement projects totaling 1.7 billion euros planned until 2032.

Specifically regarding the EAC's permissible revenue and the method of calculating electricity rates, the Authority states that its rates are determined based on Regulatory Decisions aimed at regulating how CERA sets the permissible revenue and rates for each of the Organization's regulated activities annually.

The rates, the EAC adds in its memorandum, are set so that each regulated activity recovers reasonable operating expenses, equipment and facility depreciation, and the approved return on employed capital.

"The return on employed capital, based on the methodology approved by CERA, is based on the weighted average cost of capital, which depends on the debt-to-equity ratio, as well as the cost of debt and equity capital," the Authority further explains, emphasizing that the approved rate of return on the employed capital of Production, Transmission, and Distribution Activities amounts to 4.6%.

According to the EAC, each year the Authority's Activities submit their permissible revenue for the following year to CERA for review and approval. The permissible revenue, it notes, is determined based on the budgets of the Authority's Activities' expenses, and CERA has the right to modify the budgeted expenses of the Activities if they are deemed unreasonable and to suggest changes.

Furthermore, the Authority continues, based on Regulatory Decisions, for factors not under their control, the regulated Activities of the EAC can retroactively recover deviations after two years, citing that justifications for adjustments in 2022 can be included in the permissible revenue for 2024.

As noted, the EAC's regulated Activities submitted their requests for permissible revenue for 2024 in July 2023, and after being reviewed by CERA and providing all additional information and clarifications requested, the revenue received preliminary approval from CERA, indicating reductions in specific expenses. In December 2023, the EAC adds, the Activities submitted the revised permissible revenue, along with the rates resulting from the CERA-approved permissible revenue and expected energy demand.

The new rates, the EAC further states, result in a 6% increase in the total bill of a typical household consumer, with a significant portion of this increase attributable to the 2022 Reconciliatory Adjustments amounting to 54 million euros. This amount, the Authority explains, was spent by the EAC in 2022 without being able to recover it through the rates of 2022 and therefore, based on the Regulation, is entitled to recover it in 2024.

Additionally, the EAC reminds that the discount on its tariffs during 2020-2022 cost the Authority 53 million euros, an amount, however, that it does not claim. Also, the EAC lost 24 million euros in revenue due to CERA's delay in approving the new rates for 2022, an amount not included in the permissible revenue for 2023 and therefore not claimed. Moreover, the EAC reminds that new rates were not approved for 2023, even though CERA had approved the permissible revenue for the referenced year.

In its memorandum, the EAC refers to its Ten-Year Development Program for its Regulated Activities, noting that it has to implement projects totaling 1.7 billion euros from 2024 to 2032.

Projects worth 1 billion euros relate to works that must be implemented for the expansion and strengthening of its Network, according to the System Transmission and Distribution Managers, and which have been approved by CERA. In contrast, 700 million euros mainly concern Production projects necessary for the green transition, which is expected to reduce the price of electric energy.

Finally, the EAC, through its memorandum, states that "although the EAC's Cash Reserves are currently at a satisfactory level, without the increase in Rates set by the Methodology, the Authority will not be able to execute all the projects included in its Development Program, with the consequent implications for consumers and society."