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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80)356 final
Brussels.26thJune1980
ηη
DRAFTCOUNCIL RECOMMENDATION
ONELECTRICITY TARIFFSTRUCTURES INTHECOMMUNITY
(presented bytheCommission totheCouncil)
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C0M(80)356final

ElectricityTariffStructures
Communication fromtheCommissiontotheCouncil

ELECTRICITY TARIFFSTRUCTURES
I.INTRODUCTION
1.InitsResolutionof13February1975,theCouncilemphasised theneed
tomakeitpossibleforpricestocovergradually andtothefullest
extentpossible/thecostofmakingenergyavailableandtheamortisation
(1)ofthenecessaryinvestments .OnseveraloccasionstheCouncilhas
emphasisedtheneedtosaveenergy,byoptimisingtheuseofresources.
2.Theachievement oftheseobjectives intheelectricity sectorcanbe
facilitated throughtheadoptionofanadequateandrationalelectricity
-tariffpolicybasedoncommonprinciples agreedatCommunitylevel.
3.TheCommission keepsunderreviewthedevelopment ofpricesandpricing
structuresintheenergysector.In1979theCommission,togetherwiththe
electricity supplyindustry,examinedtheelectricitytariffstructures
intheCommunity andthepossibilities oftheiralignment.Itisnow
opportunefortheCounciltoreviewthepositionandtoadoptanagreed
policy.
II.PRINCIPLES ,
4.Tariffstructures shouldguaranteethatconsumersreceiveelectricity supplies
atpricesthatensurethatcostsarecoveredandthatsoundfinancialbalances
areachieved.Tariffsshouldtakeaccountoftheproduction,transmission and ]
MI» I•_«If•*r .. • .f a.<r«•Il Ldistribution costs6fsupplyingthedifferentcategoriesofconsumer-Artificially t
lowratesfor"certainsectorsattheexpenseofhigherchargesforothers j
involvetheriskofdistortionsinthestructureofdemand.Sotherequirement j
tocovercostsshouldbefulfilledseparatelyforeachconsumersector.Tariffs !
■ "r
shouldalsobeascleara'ndstraight-forward aspossibleforobviousreasons .i
ofcommercial,publicrelations andmanagementpolicy. . •
5.Tariffstructuresshould'also bedesignedwiththerationaluseofenergyin )
X
mindbyavoiding,inparticular,inducements thatcouldencourageenergy " .
wastage.Aclearandcoherenttariffpolicyforenergysourcesenablesthe. .j
consumertomakecorrectchoicesandleadstotheoptimumutilization ofresources.
(1)O.J.N°C153/6of9.7.1975

III .Five QUIftELINiS \
6.TheCommission believes that arational tariff structure fortheelectricity
sector should bebased onthese principles which lead tothefollowing five
guideline proposals : ,
a)General application oftwo-part tariffs . .r
TWo-part tariffs consist ofpayment ofaperiodical
' fixed charge independent ofconsumption ;andapayment forthe
kilowatthours actually consumed , ,
Asbulk electricity :cannot bestored ,itisproduced when demanded . .
Electricity production ,transmission anddistribution plant isofcourse
therefore installed tomeet themaximum load which maybeexpected ata ..
•specific time *Asconsequent heavy investment iscommitted independently
oftheactual period during which plant onthesystem isused ,theover­
heads (capital ,payroll ,plant costs )therefore account for50%-80X
oftotal costs ,depending oncircumstances .Costs resulting from an
,increase inconsumption using existing plant (essentially fuel costs )
account for asmaller proportion oftotal costs .Theaverage "cost perKwh *
"therefore decreases the>-more Kwh agiven plant produces .The cost structure
isthus the inescapable logical basis fortwo-part tariffs .Where tariffs
\aresuch astoalign prices with costs ,theprice moves instep with the ,
vcosts incurred ,thus producing adecreasing unit price with increasing .
consumption .Inaddition ,however ,inthesharing offixed costs among
thedifferent categories ofconsumer ,account needs tobetaken ofthe
.contribution ofeach category totheforming ofpeak electricity demands .
This should betaken into consideration particularly toensure that fixed
costs arefairly allocated atlowlevels ofconsumption (e.g. ,inthfe
domestic sector ). .
Although most electricity suppliers intheCommunity areturning ^
towards two-part tariff structures ,theCommission believes thistrend [
should continue atafaster rate .This should reduce disparities with
other tariffs inwhich theprice ofelectricity isreduced toosharply
asconsumption grows (Seeparagraph b). . N
'./ "..
(*) Thefixed component isrelated tomaximum demand (Kilowatt )and,
consequently ,totheinvestment which theelectricity supplier hastomake .

<*)b)Elimination ofblocktariffsofapromotional nature
Sometariffspromoteelectricity demandbydividingconsumption ina
specificperiodintosuccessivefixedamountsofKwh,towhichreducing
pricesapply.Thesearethusstructuredinawaythataccentuates v
artificially adiminishing levelofcostsandthereforestimulates
unnecessarily highconsumption .Althoughthistypeoftariffmayhave
beenjustifiedinthepast,itisnolongeracceptable nowthatthe
rationaluseofenergyresourcesisparamount.Thiskindofpromotional
tariffstructure mustnowbeeliminated . -
c)Avoidanceoftariffsbasedontypeofuseofelectricity
Thecostofsupplyingelectricity isindependent ofhowitisusedby'
theconsumer.Costdependssolelyonquantityandonthetimesatwhich
theconsumption takesplace(i.e.peakandoff-peak). '
Certaintariffstructures,however,stillapplytothespecificuseof
electricity forsuchpurposesaslighting,cooking,motivepowerand
•heating.Theapplication oftariffsofthistypetoconsumers who,in
increasing numbers,areusingelectricity ,fordifferentpurposes,causes
separatesupplycircuitstobe"installed onthesamepremises,andto
bemonitored byseparatemetersneededforseparateinvoicing,which
thusleadstoadditional costs.Suchprocedures aretobeavoided.
<**>
d)Theprovisionofmultipletariffs incorporating differentprice
levels
Consumption ofelectricity atperiodsofmaximumdemandgivesriseto-
'aneedfornewinvestmentinelectricalplant.Ontheotherhanda
consumerwhotakeselectricity duringoff-peakperiodscouldreceive
suppliesfromexistingplant.Itisthereforedesirabletorestrain
demandforelectricity duringpeakperiodsandtotransferittooff-
peak.Thiscanbeachievedbyapplyingmultipletariffsincorporating
differentpricestodifferent Loadperiods'suchas:peakperiods,
off-peakperiods,winterandsummerperiodsand,inparticular,inthe
home,duringthedayandnight. n
v
,
(*)Blocktariff:atariffinwhichthechargeisbasedonaseriesof
differentkilowatt-hour ratesapplyingtosuccessivekilowatt-hour
blocksofgive)size,suppliedduringaspecificperiod.
(**)Plult1pletariff:atariffcomprisingdifferentratesaccordingto
theperiodsoftheday(e.gtratesforpeakloadhours,forday-time
hours,orforlow-loadhours)oraccordingtotheseasonoftheyear.

Thiskindoftariffisalreadyadoptedinsomecountries andcanwith
benefitbeexpanded,,particularly forsuppliestoindustry,where
.consumptionisheavy.Defermentofinvestmentinnewplantandsavings
onoperationofexistingplantwillbeespeciallysignificant where'
contractsforinterruptible suppliesaredeveloped,inparticular in
theindustrial andcommercial sector.
e).Exclusionofoutsideinfluences indrawinguptariffs
Asthesupplyofelectricity isapublicservice,electricityutilities
areonoccasionunderpressuretoofferuneconomictariffstocertain
categoriesofconsumers.Ifthisisdone,'forwhateverdesirablesocial
•• -
motives ;oranti-inflationary policyreasons,electricity andenergy
demandasawholeis/distorted.Otherconsumersmaythenbeasked
topayhighertariffs.Policyshouldensurethatappropriate andeconomic
/tariffsarech'argedtoallconsumersandthatwheresubsidiesmaybe
^warrantedonsocialgroundstothoseonlowincome,separateGovernment
"actionistakentoprovidesupportgrants.
Theguidelines inthefiveareassetoutabovecouldprovideacommonbasis
fortariffstructuresforelectricity consumersintheCommunity..The
necessarydiversityintariffstructures,owingtothespecificcharac­
teristicsofconsumergroupsineachcountryandthestructureofpower
statiortcapacity,mayneedtobetakenintoaccountinthe
adoptionoftheseguidelines .Inaddition,itisdesirable,:intimes
.. i
ofrapidlyrisingcosts,thatpricesshouldtiefrequently up-dated
toavoidAargechangesandthepoliticalproblemswhichtheymaycause.
Tariffstructures willneedtoensurethatthis'isfeasible.
/

/••
-s-
IV.ACOMMUNITY TARIFFPOLICY
8.Consistent andrationaltariffstructures are.animportantfactorinthe
- •/.
continueddevelopment ofCommunityenergypolicy.
...
Althoughtheownershipandorganization ofelectricityutilitiestake
differentformsintheCommunity,thesupplyofelectricity isapublic
servicewhichaimsattheequaltreatmentofconsumers.Withinthe
Communitytheseaimsrequireacommonalignmentoftariffsinorderto
providehomogeneous supplyconditions,i.e.toensureequalityoftreatment
ofconsumers,avoiding .distortions inpricing.Inthiswaythesecuring
ofappropriate competition intheindustrialsectorcanbehelped,and
consumerswillbeenabledtochoosetherightoptions,withtheavailability
ofclearerinformation onsupplyconditions.
9.Nevertheless ,attention mustbedrawntothefactthatanychangesto
thetariffstructuresforelectricity involvethesolutionofeconomic,
technical,legalandadministrative problems.Althoughpriceadjustments
arerelatively 1easytoimplement,-thismaynotbethecasewhenchanges ■
totariffstructures areproposed:themeritsofalteringlong-established
tariffstructures maynot*beimmediatelycleartoall.Consumerswill-
needtobeadvisedaboutthereasonsfor,andconsequences of,such -
changes.
10.TheCommission'sobjectivewiththisRecommendation isonlytoget
agreement onsomebasictariffstructureprinciples .Furtheraction
intariffandpricepolicymustbecarefullystudiedanddevelopedin
collaboration withMemberStates.
V.TARIFFRESEARCH '
11.Inadditionitwillbewisetocontinueandintensifyresearchintothe
demandcharactsristics ofthevariousconsumercategories andtheir
long-termdevelopments Thisentailshighlycomplexandexpensivesurvey
andassessment work.Exchangesofinformation onmethodology andresults,~
andcollaboration betweenCommunitycountriesinthisfieldshouldbe
increased .
i
»
V.RECOMMENDATION
The invitestheCeuneUt©approvetheattacheddraft
Recommendation .

DRAFT
COUNCIL RECOMMENDATION
onelectricity tariff structures intheCommunity
THE COUNCIL OFTHE EUROPEAN COMMUNITIES ,
Having regard totheTreaty establishing theEuropean Economic Community ,
Having regard tothedraft Recommendation submitted bytheCommission ,
Having regard totheopinion oftheEuropean Parliament ,
Whereas theCouncil ,initsResolution of13February 1975 (1),emphasised
theneed tomake itpossible forprices tocover ,gradually and tothe
fullest extent possible ,thecosts ofmaking energy available andthe
amortization ofthenecessary investments ;
Whereas consistent energy pricing isafundamental element ofeconomic and
energy policy ;
Whereas rational tariff structures allow better utilization of
resources ; >
Whereas theprovision ofelectricity isapublic service ,irrespective ,of
the legal status oftheundertakings involved ,andwhereas forthis
reason undertakings must ensure equality oftreatment ofconsumers under
comparable supply conditions ;
Whereas tariff structures founded oncommon principles lead tomore
homogeneous conditions ofsupply andare ast£p inthedirection ,ofmore
coherent electricity prices throughout theCommunity ;
Whereas electricity supply undertakings must cover their costs onthe
basis ofanobjective allocation ofthese costs among thevarious ,
categories ofusers ;
Whereas tariff structures should not beused for the redistribution of
resources among electricity consumers ; f,
Whereas promotional tariff structures likely'to prevent therational use
ofenergy should*be avoided ; :
Π-> . > ■■
(1)OJNo-C353,9.7.1975 ,p.6
n-r

Whereastheprinciples underlyingelectricitytariffstructures arenot
yetingeneraluseintheCommunity,althoughcertainof.thesestructures
alreadyreflectacommonapproach,andwhereaseffortstobringabout
simplification andunification mustbepursued;•
HEREBYRECOMMENDS TOTHEMEMBERSTATES:
•' i
Thattheyadopt,wherethesedonotalreadyexist,therequisite laws,
regulations andadministrative provisionstoensurethatelectricity ,
tariffstructures arebasedonthefollowing commonprinciples :
1.Tariffstructures shouldbedrawnupandadoptedsoastoallowthe
application ofarationalpricepolicyforelectricity andsoasto
reflectthecostsincurredinsupplyingthevariouscategories of•
consumer;tariffstructures shouldbedesignedwiththerationaluse
ofenergyinmind,avoidinducementsthatcouldencourageunjustifiably
highconsumption,andbeasclearandsimpleaspossible.
2.Thetwo-parttariffsystem,whichofthevarioustariffoptions
available,bestreflectsthecoststructureofprovidingelectricity,
shouldbegenerallyused. -..
3.Promotionaltariffstructures whichencourageunnecessary consumption
andinwhichthepriceofelectricity isartificially loweredas .
increasing amountsofelectricity areusedshouldbediscontinued ,
4.Tariffsbasedon.theusetowhichelectricity isputshouldbeeliminated ,
5.Tariffsystemsshouldprovideformultiple -tariffs,jrithdifferential v
.^ -■ :1 .rateswhichaim'totransferdemandforelectricity tooff-peakperiods,
andforcontractsforinterruptible supplies;
6.Tariffsshouldnotbekeptartificially low,forexample -forsocial
motivesoranti-inflationary policyreasons;insuchcases,separate-
action,wherewarranted,shouldbetaken.
7.Tariffstructures shouldensure,that :itispossibletoup-dateprices
atregularintervals;. !

-3-
That research bepursued anddeveloped ,inclose cooperation atCommunity
level ,into thecharacteristics ofelectricity demand fordifferent
categories ofconsumers andtheir evolution inthe long-term ,with the
objective offurther .improving tari ffstructures ;
That electricity prices onthemarket fbecharacterised bythe
greatest possible degree oftransparency ,andthat these prices and
thecost totheelectricity consumer should bemade known tothe
public aswidely aspossible .
-0O0-