Electricity regulator complains about pressure from lawmakers, DTEK

Ukraine’s
Electricity and Utility Regulation Commission filed a complaint with the State
Bureau of Investigation (DBR) alleging illegal political pressure from a group
of MPs, said the regulator’s press release on Oct. 9. The group is placing
systemic pressure, public and non-public, on the regulator’s commissioners,
they alleged. The commission suspects the MPs are lobbying the interests of
energy holding DTEK (DTEKUA, DTEREN).

The complaint has
been filed against three MPs from the Fatherland faction, according to the
epravda.com.ua website, which has the full text of the regulator’s complaint.
The pressure is related to the desire of market participants to swell the
regulated profit of power distribution companies, aiming to increase their
regulated revenue by over UAH 10 bln aggregately, the complaint said. Also, the
pressure is related to the commission’s delay to renew the licenses of power
generation companies controlled by DTEK Energy.

DTEK reacted to the
regulator’s allegations the same day, alleging them to be groundless and
calling them pressure on private business. “We are sure the DBR will provide an
objective assessment of the commission’s activity,” DTEK claimed.

Alexander
Paraschiy: Over the
last few weeks, the power regulator indeed felt enormous pressure from top
officials who have demanded an increase of regulatory profits for Ukrainian
power distribution
companies (DisCos). The
tariff reform for distributors, drafted by the regulator, stipulates that
DisCos will receive regulated return on their assets (the so-called regulatory
asset base, or RAB regulation). The latest draft of the regulation stipulates
that the regulated return will be 3% of power DisCos’ existing (old) asset base
and 16.74% of their new asset base.

At the same time,
lobbyists have demanded that the return rate on the old asset base should be
higher. In early October, the so-called National Reform Council, headed by
Mikheil Saakashvili, suggested that the return rate should be as high as 6%.

Moreover, acting
energy minister Olha Buslavets wrote a letter to PM Denys Shmyhal asking that
he order the regulator to increase the return rate on the old asset
base, as reported by the radiosvoboda.org news site. This is clearly an attempt
to place illegal pressure on the regulator.

Therefore, we consider the regulator’s complaint against the three MPs
as a pre-emptive move aiming to warn top Cabinet officials against any possible
plans to pressure the regulator. At this stage, it’s not clear whether it will
be helpful as the price of regulatory change – or over UAH 10 bln p.a.,
according to the regulator – is high enough to try to continue the pressure.