SME Chamber

Analysis of Utility Rate Tariffs

07 October 2008

Consultation Paper issued by :KPMG Advisory Unit

On behalf of the clients: Enemalta Corporation – Water Services Corporation

The analysis is based on the figures provided and no verification of the said figures has been made. We accordingly hold no responsibility for any further figures issued on the basis of these figures. We have tried to provide a constructive approach together with a mitigation plan , once again based on the figures provided at this stage

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

Introduction

The Corporations themselves set the terms of reference and are the final payers of the study presented by KPMG. In itself this creates a conflict of interest vis a vis the end user of their services. This matter should have been overseen by the Regulator, the Malta Resources Authority, at all its stages.

Any changes in tariff price structures by these Corporations need the end approval of the Malta Resources Authority as the Regulator.

Terms of Reference provided to KPMG

They did not include for a socio economic impact and neither a mitigation plan. They are also based on total recovery of costs and also future investment totaling 450.6 million between 2008 and 2012.

1. Figures have not been verified in any manner and some basic figures are totally lacking in order to make a direct comparison.
2. Discussions /meeting were held only with Corporations themselves and Government Entities (entities not specified). No meetings were held with stakeholder and as a result no mitigation plan was done or foreseen.

The EU Market

The market is now liberalized across The EU in respect to Energy . Figures in Italy alone show a decrease of 27% in the last calendar year despite the increase of oil price. An EU citizen living in Malta is disadvantaged, due to lack of the competitive ability to source his energy resource as has now become normal practice across the EU.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

The lack of initiatives not taken in the past in respect to alternative energies by irresponsible authorities now has to be forked out by the public, trade, commerce, industry and the entertainment and hospitality, industry at large and especially small enterprises.

The introduction of the surcharge was outlined by Government at earlier stages to be a temporary one. Enemalta and Water Services Corporation are now removing this concept completely and including this as part of a standard tariff procedure.

Figures in short :

Total Costs Enemalta 365,392,594

This includes :

Return on Capital Employed 22,431,623

GRTU recommends that this figure is not to be included in recovery of costs at this stage, thus allowing a direct reduction of approx 6% as tariffs as proposed by KPMG.

Revenue to be based on 342,960,971

Revenue to be based on this figure when this figure is audited to be correct.

No of Accounts Households 209,048

No of Accounts Non residential 41,855

Households

Domestic up to 3000units Users 117003 Increase over 100%

Over 3000 to 20,000 units Users 92045 Increase 28%to 40%

To be noted is the fact that these figures are given as average and as such these could end up to be misleading from many aspects.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

Current revenue for variable receipts is not identified in the report.

Target Revenue for Residential/Households

Installations projected 2,758,365

Fixed (meter rent) 17,918,400

Variable ( units) 126,658,927

Total 147,335,692

The options provided by KPMG are no different, the base rate of each unit increases where Eco Rebates are being recommended, but the cumulative revenue by the Corporation remains neutral. (pg96/97)

Option 2 would be best suited for Residential if the figures given are correct.

Domestic Tariffs The way forward

The way forward is based on the acceptance of the "Pay as you use principle" However it is to be noted that Malta currently lacks the infrastructure to allow its EU citizens the right to choose their energy supplier so this has to be considered when final tariffs are issued and agreed to.

GRTU recommends the following for Domestic Tariffs :

Two basis of tariffs

a) A guaranteed price option for a minimal of 365 days. This will

place users on a safer ground and they could plan at least for

a calendar year. Whilst Enemalta has a right to hedge and

dictate its basis for a long term, then the citizen should also

the same right.

This is a greater need in Malta where the EU Citizen does not

Have access to the competitive market.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

b) Alternative Multitier option with introduction of Peak hour Use,

Intermediate and Off Peak metering.

2) Introduction of Electronic Payments against a discounted facility

Electronic bill sending also to be introduced thus reducing costs and also become more environment sensitive.

3) Introduction of Rebates on Installation of Solar Heaters and

Photovoltaic Panels, with rebates covering minimally 70% of outlayed capital. Rebate to be given 50% through billing structure

Over 365 days and 50% in payment.

These rebates should be recovered through Schemes which were earmarked for use by MRA in their plan set out for Malta in respect to Renewable Energy Initiatives provided to the Commission in October 2007 and approved.

4) The establishment of a threshold for households depending on the

Individuals in the home. Tariffs are to be structured on this basis so that we primarily opt to conserve energy use. We need to make sure that use of electricity in units does not surpass a basis year 2005.

5) Conserving the use of energy is vital in making sure the above

is reached and that is why Energy Audits should be a must in households , certified by an Engineer. Energy Audited residences

should be given 50% of the cost of the audit in payment terms.

6) The introduction by Enemalta of a loyalty card for those who

Use less then their established bench mark. The loyalty card would include a point structure that can be utilized by the end user for purchases from "Enemalta Major Partners"

Major partners would include providers of services or products.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

The Non Residential Sector

Enemalta are expecting an income of CircaEuros 217,731,926 from this category of customers. There are 41, 855 users in this category.

The Schedule below shows the average amount of Kwh used , their current average payment, their projected increase in monetary terms and percentage and the amount of users in this category.

Kwh	Current	Projected	Percentage	Daily	Projected	Users
		Increase	Increase	Cost (C)	Daily C
-4000	357	403	Over 100%	0.98	2.08
4k-8k	1028	428	41%	2.82	3.99
8k-12k	1699	465	27%	4.65	5.93
12-20k	2705	539	19.9%	7.42	8.88	36874
20-40k	4712	593	12.5%	12.90	14.53	2349
40-60k	8165	862	10.5%	22.36	24.73	906
60-80k	11605	1237	10.6%	31.79	35.18	474
80-100	14797	1585	10.7%	40.53	44.88	232
100/200	22932	2217	9.7%	62.82	68.90	489
200/400	47423	3867	8.1%	129.92	140.52	247
400/600	83130	6273	7.5%	227.75	244.93	107
600/800	119163	8701	7.3%	326.47	350.30	52
800/1m	150798	10832	7.1%	413.14	442.82	22
1m-5m	297527	15301	5%	815	857	82
5m-10m	1004400	33427	3.3%	2751	2843	14
Ov 10m	1971926	47684	2.4%	5402	5533	7

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

Notes to the above Schedule

The amounts given are in Euros.

It is not known whether the 120 capped industry / hotels are reflected in this report from an income point of view.

KVah units only affect 142 customers beyond 80-100k bracket.

The report does not include a breakdown of users below 20,000units

Capping

Whilst it is understood that capping is both not environmentally friendly and discriminatory, the report does not outline the total value in monetary terms that has been capped and thus paid by other commercial sector and industry. A report yesterday quoted as the surcharge level decreasing to 75% instead of present 95% if this capping was not in force.

Meter Rent

Three Phase

The meter rent now increased from Euros 55.90 to Euros 420 (4200accounts) thus increasing rent by 1 Euro per day.

Single Phase

The meter rent now increased from Euros 55.90 to Euros 420

(37,797 accounts) thus increasing rent by 1 Euro a day.

Mitigation Proposals

The costs are to be based on 6% less then the projected income of Euro 217 million. The Economy is currently not to include a 6% return on investment. Thus this would reduce recovery costs to App Euro 204 million.

Unlike other countries the commercial sector does not have an option of choice. The brunt of the current situation should not be borne solely by the Non Residential users. It has been the responsibility of government through its Energy Corporation Enemalta to live up to its responsibility of providing a service at par with its EU counterparts Non residential customers in the EU have a choice.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

The proposal here includes a total alignment to EU Directives but on the other side the public and the non residential sector is being deprived of its right to a liberalized market.

While Subsidies on Electricity and Water are not acceptable, there are no rules against providing funds from other sources in astructured manner through Eco driven incentives to make sure that users can meet their obligations , by actually paying the said billing.

Mitigation Initiatives for Industry/ Commerce/ Hotels/ Non residential

Bench Mark use of these services at basis year 2005.
Audits to be made by certified engineers and payment for audit to be given in credits to all above sectors.
A rebate mechanism of up to a maximum of 70% on installations of Photovoltaics and also solar energy. Other renewable energy sources to be considered according to the related sector.

This rebate is to be given back 50% by deduction in billing and 50% by payment.

Once again MRA has approved Schemes under EU funding , to provide for these payments.

Non residential accounts to have a voluntary Euro 20 addition to

Their annual billing with a view of using these funds to provide Eco Driven initiatives to the same non industrial sector.

MEPA to undertake that all buildings over 1000sq metres are to

Minimally meet the Energy Efficiency in Buildings Directive ,and further to be energy sufficient in their needs. This would mean having providers to the grid instead of the other way round.

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

The removal of the capping will without fail have an impact on

These 120 companies/ hotels. GRTU recommends that these are Energy Audited with immediate effect and recommendations are made before end of this calendar year. The costof these recommendations are to be studied by Enemalta and a structured rebate system over 10 years is to be agreed to with these industries.

Enemalta to enter into agreements with Alternative Energy

Suppliers through a tendering process. These agreements would include price structures for products to be made available to the non residential sector at preferred rates. This would thus reduce the possibility of individual buying procedures.

Enemalta should also offer a standard choice rate of tariffs and a

Multi tier choice of tariffs to Non residential Sector . Bench Marks should be based on 2005 annual consumption

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

WATER TARIFFS

On the basis of the Electricity Report this study is also based on figures that have not been verified and further more this study should have been done by the Regulator and not by the Water Services Corporation. This any resulting information produced in this recommendation are deemed to be discriminatory in nature.

Water Cost 20,000,000 cbm @Euro .934

Total Recovery Projected by WSC : Euros 50,787,633.

Recovery includes 11.11 million for future investments (target 7.945 return on current capital employed) thus 21.8 % of total projections.

Electricity Costs are only Euro 10.71 million thus 21% of total cost. To note is that there is also the return on investment which is not at present included in this sum.

In related terms the surcharge here should have been applied on this 21% percent factor only not on the whole billing.

Also to note is the increase in distribution costs by 71% from basis year 2006.

Revenue is projected as follows :

Installations Fixed Variable Users

1,269,691 16,252,042 33,265,899 242, 918

GRTU

ANALYSIS OF UTILITY RATE TARIFFS

"because we deserve better"

Current rental fees Current Projected

Residential Euros 27.95

Non Res Euros 55.89

Residential Accounts 199,409 56.00

Non Residential Accounts 43,509 120.00

Domestic Increase ( 2person household)

M3 QTY

Current

Projected

Percentage

Monetary

Users

Less then 33cbm

42.53

80.32

88.8%

37.79

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