11 Sep 2009 13:36

State may cap electricity market offer prices when volatility is high

MOSCOW. Sept 11 (Interfax) - The Federal Tariffs Service (FTS) jointly with the Energy Ministry and Market Council has drafted a resolution aimed at preventing steep price swings on the wholesale electricity market, the FTS said in a statement.

The document, which was submitted to the government on September 10, provides for directly regulating prices by setting price caps on the day-ahead market, the main section of the electricity market, and "calculating equilibrium prices without formation of the marginal price."

Market Council will monitor the market and notify the FTS and Energy Ministry of steep price fluctuations.

A Market Council representative said the price cap mechanism would be invoked in a separate government resolution.

The mechanism could be applied if prices rise at a rate faster than a benchmark rate set by the agencies. The FTS told Interfax the draft resolution does not specify the benchmark rate but rather the formula for calculating it.

"The indicator is defined as a formula," an FTS representative said. The pace of price increases over a two-day and seven-day period will be monitored.

However, if the mechanism is not effective, direct state regulation would be triggered. It consists of capping offers from a generating company at the level of its tariff, which is determined by the FTS.

Generating companies are currently paid at the equilibrium price, which for the majority of them is higher than their offer price.

For the end user, the new resolution will mean more predictable electricity prices, he said.

Under the draft, the direct price regulation regime would expire within 30 days of its invocation.

The regulation could be invoked when there is a temporary shortage of capacity in an individual region or an absence of competition between suppliers for technological reasons, or when extraordinary situations arise.

But direct price regulation would only be used if the mechanism for smoothing price movements on the day-ahead market does not achieve price stabilization.

The resolution was drafted at Prime Minister Vladimir Putin's instruction, which he gave at a meeting devoted to the impact of the accident at the Sayano-Shushenskaya Hydroelectric Station.

In order to prevent steep price fluctuations on the electricity market following the blast that shut down Sayano-Shushenskaya, Market Council permitted Trade System Administrator to apply a correction factor to the Siberian electricity market if the price there rose to 628.24 rubles/MWh. The temporary measure was to have expired on September 1 but was later extended to October 1.