1. INTRODUCTION
The role of the electricity sector in economic growth and development of countries is indisputable. Therefore, the structure and operation of this sector is of great importance. When the data from the past to the present is examined, it is noticed that the growth of electricity sector and the electricity consumption is parallel to the growth in economy. When Turkish Electricity Transmission Company’s (“TEIAS”) Projection Report which regulates the years 2012-2012 is evaluated, it is estimated that the rate of increase in electricity demand will reach 7.7%. The expected general growth in Turkish economy, the population growth rate, the increase in electricity consumption within the frame of ordinary run of things and the industry growth rate is taken into consideration in making this estimation. Turkish electricity market, with its developing nature, is ranked among the top European countries. Turkey’s highly accelerated line from 2012 attracts attention in this graphic below which is published in Eurelectric’s “Power Statistics & Trends” report for 2013 and which shows the development of demand in electricity in Germany, Turkey and Switzerland between the years 2010-2020.
In addition to these points, the most prominent feature of the energy sector is that it possesses sub-sectors which operate both in competitive environment and as a natural monopoly. Its monopolistic nature gave rise to make changes in the legislation for economic issues. Bearing in mind the importance of electricity sector for the whole economy and following the developments in many countries there have been changes on the current regulations in Turkey as well. Electricity generation sector which have been under the monopoly of Turkish Electricity Authority (“TEK”) until 1984, has entered into the liberalization process with the enforcement of the law numbered 3096 on Granting Authorization to Institutions other than the Turkish Electricity Authority for the Generation, Transmission, Distribution and Trade of Electricity. This liberalization process cleared the way for the private sector to enter into the energy market and for the first time in Turkey, institutions other than TEK was given the authority for the generation, transmission, distribution and trade of electricity. Subsequently, there has been a lot of regulation in order to build a competitive environment and to provide incentives for the private sector to participate in investment and service sectors which include the energy sector.
In 1993 TEK was separated into two; Turkish Electricity Generation-Transmission Company (“TEAS”) (generation, transmission and wholesale) and Turkish Electricity Distribution Company (“TEDAS”) (distribution). Subsequently, it was separated into three in 2001; The Electricity Generation Company (“EÜAS”) (generation), TEIAS (distribution), Turkish Electricity Trade Company (“TETAS”) (distribution). 21 distribution companies entered into the market as distribution assets was privatized in 2005. In the beginning of 2008 the processes of privatization of generation assets have started. As from 2013, it has been decided that distribution companies shall carry out their retail activities through different legal entities which departed from themselves by means of partial division. Thus, retail activities have been separated from distribution activities. Additionally, as of 2007, producing electricity without a license became possible, subject to existence of certain conditions. The development of the aforementioned market structure is detailed in the chart below.
In the light of aforementioned reforms, (previous) Electricity Market Law numbered 4628 (“Law numbered 4628”) came into force on 3 March 2001 for the purpose of establishing a financially strong, stable, transparent and competitive energy market. But, the necessity of change in Law numbered 4628 according to the needs of the sector became apparent and on 30 March 2013, Electricity Market Law numbered 6446 (“EML”) came into force. Law numbered 4628 was not abrogated completely with the enactment of the new law; instead its title was changed to Law on the Organization and Duties of the Energy Market Regulatory Authority. In this context both laws will be applicable, EML will be applicable on all matters except for the organization and duties of Energy Market Regulatory Authority (“EMRA”) which will be regulated according to Law numbered 4628. As per article 1 of EML; the purpose of the law is: to create a market which operates according to private law provisions in a competitive environment, is financially strong, stable and transparent and to ensure that the market is regulated and supervised independently with the aim of making electricity available to the consumers in a way that is sufficient, of high quality, constant, low cost and environment-friendly. In this regard it appears that the objectives of the Law numbered 4628 are preserved in EML.
The aim of the process of restructuring electricity sector is to ensure liberty within the sector and to organize electricity trade around numerous other markets. Strategy Documents dated 2004 and 2009 which compose a big part of the reform in the electricity sector; regulate the principles of the transition to liberal electricity market. According to Strategy Documents dated 2009 Turkish electricity market is undergoing an extensive process of regulation and restructuring. As part of this process, a new tariff methodology is developed for the purpose of answering to planned structural needs. The main purpose of electricity market is to decrease tariff prices by increasing system efficiency. In this regard, beginning from 2012, tariffs which are based upon costs are assessed with regard to lost, theft and operation efficiency and determined with regard to goals for improvement. In our article, primarily general principles which EMRA applies for determining tariffs will be explained and afterwards types of tariffs will be detailed.
2. GENERAL PRINCIPALSDETERMINING THE TARIFFS
Article 3 of EML provides that tariff means; the provisions covering prices, terms and conditions related to transmission, distribution and sale of electricity and/or capacity and related services. Article 17 of the EML set outs the procedures and principles regarding the tariffs and implementation of tariffs and thereafter it layouts special procedures on the varieties of tariffs individually.
2.1. First principal regarding the tariffs presents “equal implementation between equals principal”. This principal provides, the tariffs shall be applied between equal parties without any discrimination. This principal is frequently remarked in EML and Electricity Market Tariff Regulation (“EMTR”). Applying equal transmission and distribution tariffs between equals is especially important considering competition on low and high end market. However, neither the law nor the regulation provides its criteria or in which respects the parties must be equal therefore the implementation of such rule remains uncertain. In order to solve this uncertainty on this matter, arrangements must be made in law or on the regulation.
2.2. Second principal on the tariffs is that, all tariffs shall be prepared by the relevant legal entities except from the transmission and connection tariffs. Aforementioned legal entities shall prepare the tariffs depending on the provisions and conditions which are determined by EMRA and present these tariffs to EMRA. If EMRA conforms the provisions it will approve the tariffs presented by the relevant legal entities. In other words, EMRA will not prepare tariffs directly to those legal entities; but only determine the general principals subject to the tariffs.
Article 17 of the EML states that, in case that EMRA finds the tariff offers inappropriate within the legislation, it will request to revise the relevant offer or if it is necessary it will revise it on its own motion and approve it. Relevant legal entities are entitled to apply the tariffs approved by EMRA. EMRA approval also contains adjustments to be made by the holder of the license in the tariff during the following year based on monthly inflation and any other provisions defined in the license. Formulae relating to such price adjustments are set forth in each license issued by the Authority in accordance with provisions of this Law. Any factor, which is not directly related to the legal entity‘s market activities, cannot take place in price structure. The transmission surcharge to be imposed by the Turkish Electricity Transmission Co. Inc forms an exception to this provision. The provisions and conditions of EMRA approved tariffs are binding upon all real persons and legal entities subject to these tariffs. Principles and procedures, including the suspension of the service are defined by regulations in case any real person or legal entity fails to affect the any of the payments indicated in the tariff. EMRA reviews and approves the tariff relating to the current year, concurrently with the issuance of a license requiring tariff approval.
Electricity prices will not decrease for a long time due to the fact that the tariffs are not directly prepared by EMRA since even though there is a decrease in raw material inputs or any decrease in other costs; relevant legal entities will not reflect these situations in the tariffs so they will present the high priced tariffs which do not reflect the real status. In case EMRA does not approve the high priced tariff, relevant legal entities shall apply the old tariff. However, the relevant legal entities shall have a right to file a suit against the rejection. There will not be any decrease on the prices until the file against the rejection is concluded; provided that the increase on the inflation will be made mandatory as per the law, so there will not be any decrease on the prices even after the case is concluded.
It should be noted that, although it is regulated in the legislation that the tariffs shall be prepared by the legal entities considering the adjustments made in the developed countries as explained above, this rule differs in practice. Practically, relevant legal entities share only certain items on the prices and investment with EMRA and in order not to increase the current tariff they will determine the new tariff and announce it. Relevant legal entities usually do not have a chance to negotiate with EMRA. In other words, the tariffs are still being prepared by EMRA against the adjustments made in the legislation.
2.3. Third principal of the tariffs is that the tariffs are for upcoming year. Under Article 17 of EMTY, the tariffs to be proposed for enforcement in the following year are prepared by the legal entity concerned in accordance with the provisions of this law and the license granted to it by EMRA before the end of October 31 of every year, and submitted for EMRA‘s approval. When EMRA determines that such application conforms to the provisions of the applicable license, it approves these applications before the end of the same year. In practice, EMRA preparing the tariffs announces some of the tariff parameters earlier such as leakage loss ratios but the final tariffs are being announced at the end of the year. In addition to the abovementioned matters, although that is regulated that the tariffs will be prepared yearly, alterations can be made any time as a consequence of monthly inflation or other issues. These adjustments will also be enforced by the approval of EMRA. In this regard, determination of tariffs more than once a year is possible.
2.4. The forth principal on the tariffs is that they are all binding. EMRA approved tariffs are binding upon all real persons and legal entities subject to these tariffs. In other words, all persons who took the service on the tariff are responsible to pay all costs in return of this service. Principles and procedures, including the suspension of the service are defined by regulations in case any real person or legal entity fails to affect any of the payments indicated in the tariff shall be subject to certain sanctions including suspension of service. Other sanctions except suspension of service are defined by EMRA under the regulation.
2.5. Last principal of the tariffs is that they need to be about market activities. Article 17 of the EML provides that the approved tariffs shall not involve any other factor other than the relevant legal entities market activities.
Article 11 of the EMTY provides; parameters used for calculations in order to determine the revenue and/or ceiling price for one execution period for legal entities, whose tariffs are subject to regulation, shall be determined through the revenue regulation prepared by EMRA. In this regard, following matters in revenue regulation shall be considered; the electricity must be presented safe, sufficient enough, high quality, perpetual, affordable and environmentally coherent, the regulation must be made without discrimination between the equals, ensuring that the parameters reflect the costs within the revenue regulation, increasing performance of productivity with service quality in transmission and distribution by taking into account the presentation safety, providing financial sustainability for the legal entities whose tariffs are subject to regulation within their productivity, long term productivity in the investments, supporting development of competition in the market, reflecting benefits provided depending on increased productivity and competition conditions and cross subsidies between the activities.
3. TYPESOF TARIFFS
In this topic, firstly the distinction between national tariff and regional tariff must be examined. Turkey is divided into twenty one (21) different delivery regions. Cost differences arises among these regions due to the differences of cost, industry density, lost leakage rates, land conditions, length and range of delivery and transmission lines etc. and therefore it becomes a necessity to apply different prices to regions in order to remove subvention among consumers. In this regard, a different tariff is prepared for every individual region by calculating each region’s tariff one by one for all twenty one (21) regions in accordance with legal obligations. However, due to present differences as mentioned above between regions are very high; the national tariff is applied to all consumers to prevent consumers in different regions from unfair price discrimination. National tariff expresses the case of setting the same price to the same subscriber group everywhere. In other words national tariff, determines the tariff which will be applied all across Turkey accepting twenty one (21) different regions as one region.
The effect of social and economic strategies when determining the electric prices in Turkey cannot be denied. The national tariff had been supported in undeveloped regions throughout the transition period and equalization mechanism of cost based regional tariffs which would make up the differences has been regulated. Companies which make profit beyond what is estimated in their region, transfer the surplus profit to companies which make profit less than what is estimated in their region as a result of the national tariff policy, in accordance with the price equalization mechanism. The amount determined by the aforementioned price equalization process is transferred among the delivery companies via TETAS. In other words, the companies which make profit more than what is estimated in their region pay the surplus to TETAS each month and in return TETAS meets the deficit of the companies which make less than what is estimated in their region with monthly payments.
Subsequent to temporary Article 1 of EML, national tariff policy will continue until 31 December 2015. The Council of ministers is entitled to extend this period up to five (5) years.
Article 17 of the EML provides that the tariffs are; connection tariffs, transmission tariffs, wholesale price tariffs, distribution tariffs, retail tariffs and market operation tariffs.
3.1. Connection tariffs are the tariffs that include prices, terms and conditions based on the principal of not discriminating the equals for the purposes of connecting to a distribution system to be included in the relevant connection agreement. Connection tariffs do not include system investment costs and they are limited to the expenses on behalf of the person who is making the connection.
3.2. Transmission tariffs are the tariffs that are prepared by TEIAS, which include prices, terms and conditions based on the principal of not discriminating the equals benefiting from the transmission of the electricity that were generated, imported or exported through the transmission system. Transmission tariffs include system investments made by TEIAS and additional transmission costs.
3.3. Wholesale price tariffs are the tariffs that wholesale prices of the electricity are determined by the parties without any restrictions, pursuant to the terms and conditions specified by EMRA. The wholesale price tariff for the electricity supplied from TETAS for technical and non-technical losses of the distribution companies and procuring general lighting and selling to consumers whose tariffs are subject to regulation is prepared by EMRA taking TETAS’ ability to fulfill its financial obligations into consideration.
3.4. Distribution tariffs are the tariffs to be prepared by the distribution companies that include prices, terms and conditions based on the principal of not discriminating the equals benefiting from the transmission of the electricity through the distribution system whether they are real persons or legal entities.
3.5. Retail tariffs are the tariffs applicable to non-eligible consumers that include prices, terms and conditions based on the principal of not discriminating the equals. Retail tariffs applicable to non-eligible consumers shall be proposed by assigned supplier companies and reviewed and approved by EMRA.
3.6. Market operation tariffs are the tariffs prepared on the basis of compensating income need necessary for Energy Market Operation Joint Stock Company to maintain its operations and financial sustainability.
4. CONCLUSION
The aim of the reforms in the electricity sector is to pull in the private sector investments to electricity sector and to increase competition and productivity. In this regard, dominant position of the government in the electricity sector is decreasing gradually. However, the inability to implement certain regulations which were foreseen in theory also has importance. Since Turkey is a country aiming to create an energy market compatible with Europe, it is clear that Turkey has lots of issues which needs to be changed and improved concerning its legal infrastructure and current practice.
We would like to thank İsmail Ergüneş, Chief of Limak Energy Group for his assistance in preparation of this article.
