CELEX: 51980PC0356
Language: en
Date: 1980-06-26
Title: DRAFT COUNCIL RECOMMENDATION ON ELECTRICITY TARIFF STRUCTURES IN THE COMMUNITY (presented by the Commission to the Council)

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COM (80) 356
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                  COM(80)356 final
                                                  Brussels . 26th June 1980
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                               DRAFT COUNCIL RECOMMENDATION
              ON ELECTRICITY TARIFF STRUCTURES IN THE COMMUNITY
                 ( presented by the Commission to the Council )
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  C0M(80 ) 356 final
 ---pagebreak---           Electricity Tariff Structures
Communication from the Commission to the Council
 ---pagebreak---                                ELECTRICITY      TARIFF   STRUCTURES
         I.   INTRODUCTION
     1 . In its Resolution of 13 February 1975 , the Council emphasised    the need
          to make it possible for prices to cover gradually and to the fullest
         extent possible / the cost of making energy available and the amortisation
                                        (1 )
         of the necessary investments        . On several occasions the Council has
         emphasised the need to save energy, by optimising the use of resources .
     2 . The achievement of these objectives in the electricity sector can be
         facilitated through the adoption of an adequate and rational electricity
       - tariff policy based on common principles agreed at Community level .
     3 . The Commission keeps under review the development of prices and pricing
          structures in the energy sector . In 1979 the Commission , together with the
          electricity supply industry , examined the electricity tariff structures
          in the Community and the possibilities of their alignment . It is now
          opportune for the Council to review the position and to adopt an agreed
          policy .
        II .  PRINCIPLES     ,
4 . Tariff structures should guarantee that consumers receive electricity supplies
     at prices that ensure that costs are covered and that sound financial balances
     are achieved . Tariffs should take account of the production , transmission and               ]
             M  I »               I • _ « I    f • * r .    .   •   . f          a . < r « • Il    L
     distribution costs 6f supplying the different categories of consumer - Artificially t
      low rates for " certain sectors at the expense of higher charges for others                  j
      involve the risk of distortions in the structure of demand . So the requirement              j
      to cover costs should be fulfilled separately for each consumer sector . Tariffs             !
                                                                         ■                      "  r
     should also be as clear a'nd straight-forward as possible for obvious reasons                .i
     of commercial , public relations and management policy .                   .                  •
5 . Tariff structures should'also be designed with the rational use of energy in                   )
                                                                                                   X
     mind by avoiding , in particular , inducements that could encourage energy          "         .
     wastage . A clear and coherent tariff policy for energy sources enables the .              .j
     consumer to make correct choices and leads to the optimum utilization of resources .
( 1 ) O.J. N° C 153 / 6 of 9.7.1975
 ---pagebreak---      III . Five QUIftELINiS                \
6 . The Commission believes that a rational tariff structure for the electricity
     sector should be based on these principles which lead to the following five
     guideline proposals :                           ,
     a ) General application of two-part tariffs .        . r
             TWo-part tariffs consist of payment of a periodical
    '              fixed charge      independent of consumption; and a payment for the
             ki lowatthours actually consumed , ,
            As bulk electricity : cannot be stored , it is produced when demanded . .
            Electricity production , transmission and distribution plant is of course
            therefore installed to meet the maximum load which may be expected at a ..
         • specific time * As consequent heavy investment is committed independently
            of the actual period during which plant on the system is used , the over­
            heads (capital , payroll , plant costs ) therefore account for 50 %- 80 X
            of total costs , depending on circumstances . Costs resulting from an
      , increase in consumption using existing plant ( essentially fuel costs )
            account for a smaller proportion of total costs . The average" cost per Kwh *
          " therefore decreases the>- more Kwh a given plant produces . The cost structure
             is thus the inescapable logical basis for two-part tariffs . Where tariffs
     \ are such as to align prices with costs , the price moves in step with the ,
        v costs incurred , thus producing a decreasing unit price with increasing .
            consumption . In addition , however , in the sharing of fixed costs among
            the different categories of consumer , account needs to be taken of the
       .    contribution of each category to the forming of peak electricity demands .
            This should be taken into consideration particularly to ensure that fixed
            costs are fairly allocated at low levels of consumption (e.g. , in thfe
            domestic sector ).           .
            Although most electricity suppliers in the Community are turning               ^
            towards two-part tariff structures, the Commission believes this trend         [
            should continue at a faster rate . This should reduce disparities with
            other tariffs in which the price of electricity is reduced too sharply
            as consumption grows ( See paragraph b ). .       N
                                                                         ' ./  " ..
(*) The fixed component is related to maximum demand (Kilowatt ) and ,
          consequently, to the investment which the electricity supplier has to make .
 ---pagebreak---                               <*)
b ) Elimination of block          tariffs of a promotional nature
      Some tariffs promote electricity demand by dividing consumption in a
      specific period into successive fixed amounts of Kwh , to which reducing
      prices apply . These are thus structured in a way that accentuates       v
      artificially a diminishing level of costs and therefore stimulates
      unnecessarily high consumption . Although this type of tariff may have
      been justified in the past , it is no longer acceptable now that the
      rational use of energy resources is paramount . This kind of promotional
      tariff structure must now be eliminated .                      -
c ) Avoidance of tariffs based on type of use of electricity
      The cost of supplying electricity is independent of how it is used by '
      the consumer . Cost depends solely on quantity and on the times at which
      the consumption takes place ( i.e. peak and off-peak ).               '
      Certain tariff structures , however , still apply to the specific use of
      electricity for such purposes as lighting , cooking , motive power and
  •   heating . The application of tariffs of this type to consumers who , in
      increasing numbers , are using electricity , for different purposes , causes
      separate supply circuits to be" installed on the same premises , and to
      be monitored by separate meters needed for separate invoicing , which
      thus leads to additional costs . Such procedures are to be avoided .
                                           <**>
d ) The provision of multiple tariffs           incorporating different price
      levels
      Consumption of electricity at periods of maximum demand gives rise to -
    ' a need for new investment in electrical plant . On the other hand a
      consumer who takes electricity during off-peak periods could receive
      supplies from existing plant . It is therefore desirable to restrain
      demand for electricity during peak periods and to transfer it to off-
      peak . This can be achieved by applying multiple tariffs incorporating
      different prices to different Load periods' such as : peak periods ,
      off-peak periods , winter and summer periods and , in particular , in the
      home , during the day and night .                   n
                                                     v
                               ,
(*) Block tariff : a tariff in which the charge is based on a series of
       di f ferent ki lowatt-hour rates applying to successive kilowatt-hour
       blocks of give ) size , supplied during a specific period .
 (**) Plult1ple tariff : a tariff comprising different rates according to
        the periods of the day ( e.g t rates for peakload hours , for day-time
        hours , or for low-load hours ) or according to the season of the year .
 ---pagebreak---        This kind of tariff is already adopted in some countries and can with
       benefit be expanded ,, particularly for supplies to industry , where
   . consumption is heavy . Deferment of investment in new plant and savings
       on operation of existing plant will be especially significant where '
       contracts for interruptible supplies are developed , in particular in
       the industrial and commercial sector .
e ) . Exclusion of outside influences in drawing up tariffs
       As the supply of electricity is a public service , electricity utilities
       are on occasion under pressure to offer uneconomic tariffs to certain
       categories of consumers . If this is done , ' for whatever desirable social
     • •                               -
       motives ;  or  anti-inflationary policy reasons , electricity and energy
       demand as a whole i s/di stort ed. Other consumers may then be asked
       to pay higher tariffs . Policy should ensure that appropriate and economic
   / tariffs are ch'arged to all consumers and that where subsidies may be
 ^ warranted on social grounds to those on low income , separate Government
  " action is taken to provide support grants .
The guidelines in the five areas set out above could provide a common basis
for tariff structures for electricity consumers in the Communi ty . . The
necessary diversity in tariff structures , owing to the specific charac­
teristics of consumer groups in each country and the structure of power
statiort capacity , may need to be taken into account in the
adoption of these guidelines . In addition , it is desi rable , : in times
                                                          . .                i
of rapidly rising costs , that prices should tie frequently up-dated
to avoid Aarge changes and the political problems which they may cause .
Tariff structures will need to ensure that this' is feasible .
                                                     /
 ---pagebreak---                                  /   •   •
                                       - s -
     IV . A COMMUNITY TARIFF POLICY
 8 . Consistent and rational tariff structures are . an important factor in the
                                           -         •   /  .
     continued development of Community energy policy .
               ...
     Although the ownership and organization of electricity utilities take
     different forms in the Community , the supply of electricity is a public
     service which aims at the equal treatment of consumers .      Within the
     Community these aims require a common alignment of tariffs in order to
     provide homogeneous supply conditions , i.e. to ensure equality of treatment
     of consumers , avoiding . distortions in pricing .   In this way the securing
     of appropriate competition in the industrial sector can be helped , and
     consumers will be enabled to choose the right options , with the availability
     of clearer information on supply conditions .
 9 . Nevertheless , attention must be drawn to the fact that any changes to
     the tariff structures for electricity involve the solution of economic ,
     technical , legal and administrative problems . Although price adjustments
     are relatively1 easy to implement ,- this may not be the case when changes    ■
     to tariff structures are proposed : the merits of altering long-established
     tariff structures may not *be immediately clear to all . Consumers will-
     need to be advised about the reasons for , and consequences of , such      -
     changes .
10 . The Commission 's objective with this Recommendation is only to get
     agreement on some basic tariff structure principles . Further action
     in tariff and price policy must be carefully studied and developed in
     collaboration with Member States .
     V.   TARIFF RESEARCH                               '
11 . In addition it will be wise to continue and intensify research into the
     demand charactsristics of the various consumer categories and their
     long-term developments This entails highly complex and expensive survey
     and assessment work . Exchanges of information on methodology and results , ~
     and collaboration between Community countries in this field should be
     increased .
                                 i
                                 »
     V.   RECOMMENDATION
     The               invites the CeuneU t© approve the attached draft
      Recommendation .
 ---pagebreak---                                    DRAFT
                         COUNCIL RECOMMENDATION
          on electricity tariff structures in the Community
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community,
Having regard to the draft Recommendation submitted by the Commission ,
Having regard to the opinion of the European Parliament ,
Whereas the Council , in its Resolution of 13 February 1975 ( 1 ), emphasised
the need to make it possible for prices to cover , gradually and to the
fullest extent possible, the costs of making energy available and the
amortization of the necessary investments ;
Whereas consistent energy pricing is a fundamental element of economic and
energy policy ;
Whereas rational tariff structures allow better utilization of
resources ;                                          >
Whereas the provision of electricity is a public service , irrespective, of
the legal status of the undertakings involved, and whereas for this
reason undertakings must ensure equality of treatment of consumers under
comparable supply conditions ;
Whereas tariff structures founded on common principles lead to more
homogeneous conditions of supply and are a st£p in the direction, of more
coherent electricity prices throughout the Community ;
Whereas electricity supply undertakings must cover their costs on the
basis of an objective allocation of these costs among the various ,
categories of users ;
Whereas tariff structures should not be used for the redistribution of
resources among electricity consumers ;         f,
Whereas promotional tariff structures likely'to prevent the rational use
of energy should*be avoided;                     :
                                                Π ->   . > ■ ■
 ( 1 ) OJ No- C 353 , 9.7.1975 , p. 6
                                                n -r
 ---pagebreak--- Whereas the principles underlying electricity tariff structures are not
yet in general use in the Community ,       although certain of . these structures
already reflect a common approach , and whereas efforts to bring about
simplification and unification must be pursued ;         •
HEREBY RECOMMENDS TO THE MEMBER STATES :
                    • '                            i
That they adopt , where these do not already exist , the requisite laws ,
regulations and administrative provisions to ensure that electricity                  ,
tariff structures are based on the following common principles :
1 . Tariff structures should be drawn up and adopted so as to allow the
     application of a rational price policy for electricity and so as to
     reflect the costs incurred in supplying the various categories of        •
     consumer ; tariff structures should be designed with the rational use
     of energy in mind ,       avoid inducements that could encourage unjustifiably
     high consumption ,   and be as clear and simple as possible .
2 . The two-part tariff system , which of the various tariff options
     available , best reflects the cost structure of providing electricity ,
    should be generally used .                                           -        .     .
3 . Promotional tariff structures which encourage unnecessary consumption
     and in which the price of electricity is artificially lowered as           .
     increasing amounts of electricity are used      should be discontinued ,
4 . Tariffs based on .the use to which electricity is put should be eliminated ,
5 . Tari ff systems should provide for multiple - tariffs , jrith differential v
              . ^            -■                : 1              .
     rates which aim 'to transfer demand for electricity to off-peak periods ,
     and for contracts for interruptible supplies ;
6 . Tariffs should not be kept artificially low , for example - for social
     motives or anti-inflationary policy reasons ; in such cases , separate         -
     action , where warranted , should be taken .
7 . Tariff structures should ensure, that :it is possible to up-date prices
     at regular intervals ;.                 !
 ---pagebreak---                                 - 3 -
That research be pursued and developed , in close cooperation at Community
level , into the characteristics of electricity demand for different
categories of consumers and their evolution in the long-term, with the
objective of further . improving tari ff structures;
That electricity prices on the market fbe characterised by the
greatest possible degree of transparency , and that these prices and
the cost to the electricity consumer should be made known to the
public as widely as possible .
                             -0O0-