Introduction
On 5 October 2022, the Government approved a regulation on the determination of electricity and gas prices in an extraordinary market situation, which was authorised by an amendment to the Energy Act[1].The proposal of the regulation was submitted by the Ministry of Industry and Trade in response to the extraordinary situation on the electricity and gas market and the related price increases.
In connection with the adoption of the energy price cap, the Government also abolished the so-called economy tariff, i.e. the originally planned electricity, gas and heat allowance for 2023, which was replaced by the energy price cap as a support with a higher financial allocation. According to estimates by the Ministry of Finance, the total amount of financial aid could reach up to CZK 130 billion.
In this article, we will outline the basic parameters and impacts of the government regulation, i.e. in particular who is affected by the price cap, to what extent and under what conditions.
Entities concerned
Among the entities fully affected by the capping of energy prices (i.e. both electricity and gas) are public service providers such as government institutions, municipalities, schools and providers of health and social services. In addition to these institutions, households and businesses are also subject to capping, to the extent and under the conditions set out below.
In terms of energy pricing, the regulation distinguishes whether entities are connected to low, high or very high voltage. All customers who are connected to low voltage, which are mainly all ordinary households and some businesses, are eligible for full capping.
Businesses connected to high or very high voltage are only eligible for electricity price capping if they meet the conditions for being classified as small and medium-sized entities (i.e. businesses employing fewer than 250 people and having an annual turnover of less than EUR 50 million or an annual balance sheet total of less than EUR 43 million). For small and medium-sized entities, the capping will apply to 80% of the highest monthly value of energy consumption at the supply point over the last 5 years[2]. The reference period is from 1 September 2017 to 31 August 2022, or it may be shorter if the actual values of electricity consumption for the whole period are not registered with the market operator.
This measure may motivate companies to behave more economically, as they can achieve price capping for all their consumption if they consume less energy than in the last five years.
Gas pricing will apply in full to all households and other small gas consumers with annual gas consumption up to a limit of 630 MWh. In addition, small and medium-sized entities with annual consumption between 630 MWh and 4 200 MWh will also be subject to gas price capping. In this case, the price will again be capped at up to 80% of their highest monthly consumption at the supply point over the last five years.
According to the regulation, the capping of gas prices also applies to all entities in the case of gas for heat production, i.e. in particular gas used in domestic boiler rooms and gas heating plants, regardless of the volume of its consumption.
Set energy prices
According to the government regulation, the above mentioned entities have a maximum electricity price of CZK 5,000/MWh. The fixed monthly fee for electricity supply is set at a maximum of CZK 130 per supply point per month (this is a fee per supply point regardless of consumption).
In the case of gas, the price ceiling is set at CZK 2 500/MWh. The fixed monthly charge for gas supply is set at a maximum of CZK 130 per supply point per month, irrespective of consumption.
The prices set by the regulation are exclusive of VAT and electricity or gas tax, and do not include the price of the related electricity or gas service. The price of the related service in the electricity sector consists of charges for reserved power, for renewable sources, for system services of ČEPS, a.s., which operates the national transmission system, and a fee to the market operator. The price of the related gas service includes the gas distribution fee and the market operator fee.
Duration and future perspective
The electricity and gas prices set by the regulation will apply to electricity or gas supplies made throughout the next year, i.e. in the period from 1 January 2023 to 31 December 2023.
However, the price cap should already be reflected in energy advance payments as from November 2022, as suppliers will be obliged to automatically adjust their customers’ advance payments within 30 days of the announcement of the price cap and then send them a revised advance payment schedule. Consequently, the capping will start to apply automatically and those affected by the capping do not need to submit any applications.
Customers who have a lower price for electricity and gas under their existing contract compared to the new cap will pay the contractual price without change. Therefore, as long as this contractually agreed lower price remains in place, the contractual relationship under the electricity or gas supply or bundled services contract will remain unaffected.
As energy price capping is a topical and dynamic issue, further developments can be expected. For example, plans to cap gas prices for businesses in Germany are currently underway at CZK 1,700 per MWh up to 70% of average annual consumption. Such a situation could jeopardise the competitiveness of Czech companies because, as mentioned above, the price cap will be higher for them. Therefore, if this form of support is adopted in Germany, it is possible that the Czech Republic will further modify the pricing conditions or the price ceiling.
Contracts for energy supply
In addition to capping energy prices, the government regulation also introduces a contracting obligation. It applies to the so-called suppliers of last resort who will be obliged to offer a contract for energy supply at the capped price to customers covered by the price fixing who fail to conclude energy supply contracts with another supplier. This means that all customers subject to the capping will be entitled to enter into an energy supply contract with a supplier at the maximum price set by the Government. The suppliers of last resort in the Czech market are set at three for electricity and three for gas according to the designated distribution territories. These are entities that are obliged by law to supply electricity and gas to customers at set prices and can be used automatically, for example, in the event of the bankruptcy of the customer’s existing supplier, or as an insurance policy for small customers and households that have not found another supplier.
Under the related amendment to the Energy Act, consumers will also be able to terminate contracts that contain prices derived from developments on exchanges (spot prices) more easily. This is a provision that will apply exclusively to consumers and will apply to both fixed-term and open-ended contracts. Consumers are now entitled to terminate their obligations under these contracts with one month’s notice, starting on the first day of the month following the delivery of the notice to the electricity or gas supplier. It is also stipulated that any arrangement that entitles the electricity or gas supplier to change the agreed price in accordance with stock exchange developments without the express consent of the consumer shall be disregarded.
Conclusion
The capping of energy prices is a partial solution to the emergency situation on the electricity and gas markets for a number of entities, in particular households, small and medium-sized entities and public service providers. Energy prices for these entities will be set on the basis of the regulation for the whole of 2023 and the regulation can be extended further if necessary.
However, there is still no long-term and systemic solution to the energy crisis at European level, which is desirable.
This article is based on the current situation as of 25. 10. 2022.
Should you have any questions on the subject of energy price capping, we are at your disposal.
Mgr. Kateřina Roučková, junior lawyer – rouckova@plegal.cz
JUDr. Tadeáš Petr, partner – petr@plegal.cz
26. 10. 2022
[1] Act No. 287/2022 Coll., amending Act No. 458/2000 Coll., on business conditions and the exercise of state administration in the energy sectors and on amendments to certain acts (Energy Act), as amended, and Act No. 265/1991 Coll., on the competence of the authorities of the Czech Republic in the field of prices, as amended.
[2] The maximum monthly value of electricity consumption shall be determined as the highest value of the actual monthly values of consumption at the point of consumption in the calendar month that coincides with the calendar month for which the maximum monthly value of consumption is being determined (i.e. the maximum monthly value for January 2023 shall be based on the values in January 2018, January 2019, January 2020, January 2021 and January 2022).