Removing caps/compensations on electricity bills is the same as with gas, a much more difficult process than implementing them. Even if such measures are necessary, at some points in the free market, when there are slippages, the construction path must be based on sound principles.

We conduct an analysis of the current situation on the electricity market from the point of view of removal/non-removal of price restrictions.

Repeal of the Energy/Gas Price Cap Act will result in the application of existing prices in existing contracts.

The limited electricity price for household consumers has three values: 0.68 lei/kWh with VAT, if the monthly consumption is less than 100 kWh, 0.8 lei/kWh with VAT, if the monthly consumption is from 100-255 kW -h and 1.3 lei/kWh including VAT, if the monthly consumption exceeds 255 kWh.

For example: the price in the electricity supply contract for an apartment in Bucharest is 1.3539 lei/kWh including VAT (this price is valid for the attached bill until April 2024).

Therefore, lifting the ceilings would bring, in the case of this customer from Bucharest (who, except for the summer months, has an average consumption of about 65 kWh/month), an immediate price increase of 99% (in this case, lifting the cap law would force the customer to sp pay in the winter months twice what he would have paid at the capped price).

At the same time, we have suppliers who mostly purchase electricity for the population for the next year at a capped price of 0.45 lei/kWh, which will decide to cancel the price cap law, which will instantly bring an additional profit to the supplier level of up to 25% !!!

If consumers switched to the www.anre.ro platform, the existing offers there would pay an average of 14% higher prices.

However, the price cap creates an injustice

“The tax increase on buildings is 80 or 100 lei per year. Consider that we are going to freeze payments at the level of city halls, villages and cities must work. The government is under pressure to support gas and energy compensation. We have the lowest fees and taxes in the European Union”, – this was the position of the executive president of the Association of Municipalities of Romania, Constantin Tom, for Free Europe on October 12, 2022.

Based on the figures above, we will make a simple calculation:

• a) We have a person A who lives in an apartment and has a minimum monthly wage in the economy of 1898 lei and who in 2022 had an electricity consumption of 600 kWh, for which he paid a regulated price of 0.68 lei / kWh with VAT, accordingly he paid the amount of 408 lei/year. In a situation where the price would not be capped and he would pay the lowest price on the market, according to ANRE data, he would pay 468 lei, or 60 lei more per year. According to the proposed tax changes (see statement above), he will pay an additional tax of approx. 80 lei/year, including compensation for electricity.

• b) We have a person B who lives in a house with an area of ​​200 square meters, a monthly income of 40,000 lei and who in 2022 consumed 1199 kWh of electricity, for which he paid a regulated price of 0.68 lei/kW- h. with VAT, respectively, the amount of 815 lei/year was paid. In a situation where the price would not be capped and he would pay the lowest price on the market, according to ANRE data, he would pay 935 lei, or 120 lei/year more. According to the fiscal changes, he will have to pay an additional tax of approx. 100 lei/year, including compensation for electricity.

From this example, it follows that poor person A received compensation of 60 lei, but will pay additional taxes of 80 lei. While rich person B received a reward of 120 lei but will pay additional taxes of 100 lei. In fact, poor person A will pay a higher tax of 20 lei to pay part of compensation for rich person B’s energy.

The majority of electricity consumers in Romania found themselves in the situation of person A, being put in a position to indirectly pay part of the compensation on the accounts of people with high incomes.

Not abolishing electricity prices means a burden on the state budget, which will cause more fees and taxes, and the burden will fall on the poor, who will have to pay additional taxes to offset part of the bills for people with high incomes. At the same time, the repeal of the price cap law will result in contract prices for Romanians’ bills, high prices set unilaterally by suppliers, in 2022, respectively, Romanians will be able to pay higher prices than the current market prices.

As in the case of natural gas, a possible decision to remove the price cap should be made at least 6 months in advance with a subsequent cap removal/compensation calendar, so as not to end up in a situation where consumers suffer more if this aid scheme is not implemented and identified a way to generate cyclical excess profits for suppliers.

Cancellation of energy price restrictions should occur only after performing the following actions:

– a true, consistent, fair and real policy for the protection of vulnerable consumers;

– a mechanism for solving slippages in the market and protecting consumers in such situations, which will automatically turn on when certain conditions are met;

– the creation of an organization for the alternative resolution of energy disputes – SALENERG – (mandatory according to the Emergency Decree No. 38/2015), which is a necessity for Romania, which will bring to the gas and energy market an institution that would respond to specific problems after the conclusion of the contract ( where ANRE has no competence in the free market), this will avoid many of the billing problems that currently exist, it will relieve the courts of this particular issue.

N. Ed: Dumitru Kiselice is the president of the Intellectual Energy Association