In accordance with amendments to the Electricity Market Law, Enerģijas publiskais tirgotājs AS (EPT) will be in charge of mandatory electricity procurement starting on 1 April.

So far, the public supplier’s obligation to perform mandatory procurement functions has been provided by Latvenergo AS. Once the market is opened completely, the mandatory procurement component (MPC) increase restriction mechanism is developed and state budget subsidies are introduced, this will no longer be a valid mechanism. A separate public limited company must be established so that a state budget subsidy may be used to cover mandatory procurement expenses, covering part of users’ electricity expenses. Because a merchant operating within a competitive market may not receive budget subsidies, this task should no longer be performed by Latvenergo AS but handed over to a subsidiary. The new entity will commence operations on 1 April 2014 to take over the mandatory procurement functions currently handled by Latvenergo AS.

Electricity purchased as part of the mandatory procurement is purchased at higher state-mandated tariffs but sold on the electricity exchange at the market price. The difference between electricity prices and the expenses on ensuring such trading represents the annual expenses that have to be compensated, which determine the MPC volume effective from 1 April of each year. In accordance with the applicable legislation, EPT will conduct the mandatory procurement of electricity that will be sold on an exchange. Considering the annual expenses on the mandatory procurement and the state budget subsidy, EPT will perform calculations of MPC each year and submit them for approval to the Public Utilities Commission (PUC). The PUC will review the calculations and approve the MPC, which will be included in customer invoices for electricity consumed starting from 1 April of each year.

For reference: in 2013, compensated mandatory procurement expenses constituted EUR 211.2 million, resulting in a 16% higher MPC. However, considering the expected state subsidy of EUR 29.3 million for the year 2014, compensated expenses were reduced to EUR 181.9 million; as a result, the MPC effective from 1 April has been calculated as 2.679 cents per kWh (1.883 santims/kWh), a reduction of 0.4% from the previous year.

Additional information:
Jānis Irbe
Group Treasurer
Phone: +371 67 728 239
E-mail: investor.relations@latvenergo.lv

www.latvenergo.lv

About Latvenergo

Latvenergo Group is a pan-Baltic energy company, engaging in electricity and thermal energy generation and supply, electricity distribution services and management of transmission system assets. Latvenergo Group holds one-third of the entire Baltic electricity market, thus ensuring its leadership in the Baltic electricity supply. Latvenergo AS has been acknowledged as the most valuable company in Latvia for several years in a row. International credit rating agency Moody’s has assigned Latvenergo AS an investment-grade credit rating of Baa3/stable.

Latvenergo Group includes the parent company Latvenergo AS (electricity and thermal energy generation and supply) and its subsidiaries Latvijas elektriskie tīkli AS (management of transmission system assets), Sadales tīkls AS (electricity distribution), Elektrum Eesti OÜ (electricity  supply in Estonia), Elektrum Lietuva UAB (electricity supply in Lithuania) and Liepājas enerģija SIA (thermal energy generation and supply, electricity generation), as well as Elektrum Latvija SIA (electricity supply), a subsidiary of Elektrum Eesti OÜ.