summary of the case

Cost-reflectivity of network tariffs is a precondition for the viability of these networks and ultimately for attracting investment and securing energy supply, both of which are key objectives of the Energy Community Treaty. The principle of cost-reflectivity is embedded in the Energy Community acquis communautaire. In the Secretariat’s position as expressed in the Opening Letter, deviations are possible if they are motivated by the wish to increase the efficiency of operating the network, and comply with the general principles of Energy Community law such as legal certainty or the duty to provide reasons.

The present case concerns the Montenegrin regulatory authority’s decision to set the distribution network tariff in electricity for 2011/2012. More precisely, the Opening Letter considered the manner of how certain cost-factors have been determined, but not the appropriateness of concrete figures, which is a task for the regulatory authority alone. The Secretariat identified the setting of the level of recognized network losses, the costs for procurement of the electricity necessary to cover network losses and the rate of return on assets as problematic from the perspective of cost-reflectivity.

With regard to the level of network losses recognized by the regulatory authority, the decision was flawed, in the Secretariat’s view, by the refusal to take into account any losses other than technical. It excluded all so-called commercial losses, a denomination normally used for electricity thefts. As regards the amounts accepted by the regulatory authority for the costs of electricity used to cover the losses, as well as the rate of return on assets set by the regulatory authority, the Secretariat essentially challenged the lack of reasoning of the concrete findings in the decision. Instead, the decision was based extensively on the regulatory authority’s discretion, given to it by the Energy Law, to contain costs in order to “limit the growth of prices and tariffs for the purpose of achieving the economic and energy policy of Montenegro”. It did not become clear in the decision to what extent the viability of the networks has been taken into account in those considerations.

Following the adoption of new Methodology for Setting Regulatory Revenue and Prices for Use of Electricity Distribution System (OG 2/12 and 12/12) and a Decision on Approved Regulatory Revenue and Prices for Distribution Network Operator No 12/694-71, the Secretariat closed the Case ECS-12/11 on 12 June 2013.