On the legislation amendments
On the legislation amendments relevant to the Customers & Solutions segment
AB “Ignitis grupė” (hereinafter – the Group) informs that on 4 November 2021 the Parliament of the Republic of Lithuania adopted amendments to the Law on Electricity of the Republic of Lithuania (hereinafter – LoE) and the Law on Natural Gas of the Republic of Lithuania (hereinafter – LoNG), which change the legal regulation of the supply of natural gas as well as public and independent supply of electricity to B2C customers. UAB “Ignitis”, a Customers & Solutions company controlled by the Group, (hereinafter – the Company or Ignitis) carries out public supply, independent supply of electricity and supply of natural gas to private customers, thus such legislation amendments will impact the activities of the segment.
The main changes to LoE and LonG influenced by the ongoing price increase in energy commodities, including electricity and gas, in the global market:
1. the amendments to LoE extend the deadline of stage II of the market liberalisation by half a year to 1 July 2022 (from 1 January 2022) and establish procedures of informing the consumers related to the change. The final electricity market liberalisation deadline remains unchanged, and the liberalisation process shall be implemented by 1 January 2023;
2. the amendments to LoE provide an opportunity for the Company to apply to National Energy Regulatory Council (hereinafter – NERC) and propose to NERC to adopt the decision not to recognise a part of electricity purchase price when determining price caps for public supply of electricity, and to spread out the difference between the actual price and the price determined by NERC throughout the period until 31 December 2027 by including an additional component to the price of the transfer services. This opportunity would be available to the Company if the public electricity price for private customers would increase by more than 40%. LoE provides that the Company would be compensated for the borrowing costs experienced due to the amortisation;
3. the amendments to LoNG establishes the Company an opportunity to propose NERC to adopt a decision regarding the reduction of the forecasted natural gas (product) prices and to spread out the difference from the unrecognised part, due to income that was not actually received or was exceeded, throughout a period of 5 years by including an additional component to the price of natural gas distribution services applied to households. Natural gas supply companies may submit such proposals to NERC if the difference between the natural gas tariff for private customers estimated by the natural gas supplier and the currently effective tariff for private customers is more than 40%. LoNG provides that the Company would be compensated for the borrowing costs experienced during the amortisation.
According to the assessment of the Group, the amendments to LoE and LoNG will not have a significant impact on the activities and performance of the Group but will ensure the interests of the consumers because postponing the deadline of stage II of the market liberalisation will provide consumers an opportunity to make decisions in line with their interests over a longer period. The extended deadline of stage II of electricity market liberalisation and the respective delay in stage II deregulation will reduce the estimated independent supply sales of the Company for the first half of 2022. The Company will not experience performance losses due to the amendments to LoE and LoNG related to reducing the electricity and natural gas purchase price by spreading out the differences between the actual cost of commodities and the approved tariffs for private customers over the future periods. Even though the borrowing costs will be compensated, the amendments to LoE and LoNG will lead to a significant increase of debt level of the Company, which will gradually decrease until 2027. The Group has already about the intent of the Company to conclude a short-term loan agreement. Depending on the prices of commodities in the future, the Company may evaluate additional financing alternatives.
The legislation amendments will also have to be signed by the President of the Republic of Lithuania. The Group will not inform separately about the signing and entry into force of the legislation, unless the legislation will not be signed by the President of the Republic of Lithuania.
For more information please contact:
Artūras Ketlerius
Head of Public Relations at Ignitis Group
