New amendments to the consumer price caps and contributions due by market operators in the Romanian energy sector (not yet applicable)

On 23 November 2022, following a Parliamentary approval process of almost three months, the Chamber of Deputies adopted the final version of the draft law (Draft Law) for the approval and amendment of Government Emergency Ordinance no. 119/2022 (GEO 119/2022), which had previously entered into force on 1 September 2022. The amendments to GEO 119/2022, which shall be implemented by effect of the Draft Law, will bring significant changes to the existing emergency regulatory measures enacted under the Government Emergency Ordinance no. 27/2022 on the measures applicable to final consumers on the electricity and natural gas market between 1 April 2022 and 31 March 2023, as well as for amending and supplementing certain regulations in the energy sector (GEO 27/2022).

The Draft Law has been enacted by the President of Romania on 13 December 2022 and shall enter into force within 3 days of its publication in the Official Gazette of Romania.

In terms of duration of the new measures, GEO 119/2022 further extended the initial applicability of the measures under the GEO 27/2022 from 31 March 2022 to 31 August 2023, while the Draft Law will implement an additional extension, up to 31 March 2025.

1. Amendments to the price caps for consumers

   Electricity prices for final consumers will be subject to the following price caps:

   Natural gas prices for final consumers, during the period 1 April 2022 – 31 March 2025, will be subject to the following price caps:

   For the period 1 January 2023 – 31 March 2025, the prices under standard offers prepared and published by suppliers, for clients that are subject to the price caps detailed previously, cannot exceed the value of the final invoiced price considering the applicable price cap for either electricity or natural gas supply.

   In the case of household clients, the price caps are applicable only for the consumption location representing the domicile or residence of the final consumer. The household client that has both a residence and a domicile address can benefit from the applicable price cap either at the domicile or at the residence address. It is unclear whether the second consumption location of a household consumer, other than that which the household consumer will declare under a statement on own liability, will be excluded from any type of price cap, or should still benefit from the general price cap of RON 1.3/kWh.

    

2. Reimbursement right for suppliers

   The Draft Law implements a slight amendment to the provisions regarding the right of suppliers to request the reimbursement of the difference between their average acquisition price and the acquisition component corresponding to the capped prices offered to consumers, pursuant to GEO 27/2022, amendment which could be interpreted as excluding the application of the RON 1,300/MWh ceiling established through GEO 119/2022 for the average acquisition price notified by suppliers, strictly for quantities supplied to consumers taken over under the last instance regime (FUI).

   Moreover, the settlement of reimbursement amounts with the suppliers will be effected as follows:

   1. 40% of the requested value within 10 business days from submitting the reimbursement request; and
   2. the difference between the value determined by ANRE following the review of the reimbursement request submitted by the supplier and the amount paid under letter (i) above, within 10 business days from receiving the definitive values from ANRE, corresponding to the reimbursements to which the supplier is entitled to;
   3. to the extent that the value determined by ANRE is lower than the value paid under letter (i) above, the supplier must reimburse the difference within 2 business days from the communication of the values determined by ANRE.

    

3. Contribution to the Energy Transition Fund

1. maximum RON 0.68/kWh (VAT included):
   1. for the consumption registered in the period 1 September 2022 – 31 December 2022 by household clients whose average monthly consumption for the year 2021 is no higher than 100 kWh;
   2. for the consumption registered in the period 1 January 2023 – 31 March 2025, by the following categories of clients:
      • household clients whose monthly consumption is no higher than 100 kWh;
      • household clients that use medical devices, machines or equipment required for performing treatments, based on a request and a statement on own liability; final invoiced price shall be applicable starting with the first day of the month following that in which the required documentation was submitted;
      • household clients that have in their care at least three children of up to 18 years old, respectively 26 years old, in case they follow a form of education, based on a request and a statement on own liability; final invoiced price shall be applicable starting with the first day of the month following that in which the required documentation was submitted;
      • household clients single-parent families that have in their care at least one child of up to 18 years old, respectively 26 years old, in case they follow a form of education, based on a request and a statement on own liability; final invoiced price shall be applicable starting with the first day of the month following that in which the required documentation was submitted;
2. maximum RON 0.80/kWh (VAT included):
   1. for the consumption registered in the period 1 September 2022 – 31 December 2022 by household clients whose average monthly consumption for the year 2021 is between 100.01 and 300 kWh for a monthly consumption that doesn't exceed 255 kWh; excess consumption over 255 kWh shall be invoiced pursuant to the provisions of art. 5 par. (1) of GEO 27/2022;
   2. for the consumption registered in the period 1 January 2023 – 31 March 2025 by household clients whose monthly consumption is between 100.01 and 255 kWh; the consumption between 255 and 300 kWh per month shall be invoiced at a maximum price of RON 1.3/kWh (VAT included), and in case the monthly consumption exceeds 300 kWh, the entire quantity shall be invoiced at the maximum price of RON 1.3/kWh;
3. maximum RON 1/kWh (VAT included), for 85% of the monthly consumption, with the difference being invoiced at a maximum price of RON 1.3/kWh, based on the statement on own liability of the legal representative, for the following categories of clients:
   1. small and medium enterprises (SMEs), as such are defined under Law no. 346/2004 for stimulating the establishment and development of small and medium enterprises;
   2. operators/regional operators as defined under Law no. 51/2006 regarding public utilities community services, carrying-out certain public utility services, as well as Metrorex S.A. and airports that are under the subordination/coordination or authority of the Ministry of Transportation and Infrastructure;
   3. economic operators from the food industry (ie, identified through NACE code 10), as well as those from the agriculture and fishing industry (ie, identified through NACE codes 01 and 03);
   4. local public authorities and institutions, deconcentrated public services of the ministries andother central bodies, county, municipal or local interest companies or commercial enterprises, autonomous administrations and all public and private entities that perform a public service, under the law, if such are established or organized at the level of communes, cities, municipalities, counties, the municipality of Bucharest and, as applicable, at the level of territorial-administrative subdivisions of municipalities or at the level of intercommunity development associations, under the leadership, coordination, control and responsibility of local public administration authorities;
   5. national institutes of research and development, as such are defined under Government Emergency Ordinance no. 57/2002 regarding scientific research and technological development; 
4. maximum RON 1/kWh (VAT included), for the entire consumption of public and private hospitals, public and private educational institutions, as well as day-cares and public and private providers of social services; the price cap provided under this point applies also if the previously mentioned entities are the final beneficiary of the electricity consumption and/or for all buildings that have been constructed and authorized as hospitals;
5. maximum RON 1/kWh (VAT included), for 85% of the monthly consumption, with the difference being invoiced at a maximum price of RON 1.3/kWh (VAT included), for public institutions, other than those listed under letter d) above, as well as those belonging to religious cults that are officially recognized in Romania;
6. maximum RON 1.3/kWh (VAT included), for all household and non-household consumers that are not listed under letters a) – e) above.

1. maximum RON 0.31/kWh (VAT included), for household clients;
2. maximum RON 0.37/kWh (VAT included), for non-household clients whose annual natural gas consumption for the previous year is no more than 50,000 MWh, as well as for producers of heating energy; starting from 1 January 2023, the maximum price of RON 0.37/kWh (VAT included) shall also apply for non-household clients from industrial parks, as well as those from within closed distribution systems.

Probably the most important change brought on by the Draft Law to the obligations concerning the Energy Transition Fund contribution is that, given the applicability period of this obligation is defined by reference to the "applicability period of the provisions of this Government Emergency Ordinance" (ie, of GEO 27/2022), the aforementioned extension of the applicability period for the energy price caps until 31 March 2025 will be effective for the obligations relating to this contribution as well.

The Draft Law also mentions that production capacities commissioned after 1 April 2022 are exempted from this obligation, amending the currently in force exemption which applied for capacities commissioned after 1 September 2022.

Moreover, the special calculation mechanism for the contribution due in case of transactions related to export sales or intra-EU deliveries of electricity is eliminated from the Draft Law, such transactions being further subject to a contribution calculated based on the general formulas, for production activities, respectively for trading, as applicable.

The Draft Law also introduces a new category of operators within the scope of this contribution, namely the counterparties of electricity producers from financial agreements for risk management (hedging agreements) which must pay as a contribution any amount above RON 450/MWh charged as electricity price under the respective hedge (as computed under a specific formula). The contribution is withheld and paid by the producers from revenues obtained by resident / non-resident entities, in relation to long-term market risk hedging agreements. We note that the calculation formula only accounts for the difference between the variable (floating) price under the hedging agreement and the price of RON 450/MWh, without any consideration to the potential fixed price under the relevant financial agreement (considering for example a standard energy swap hedging agreement). Considering that, assuming a potential scenario where the fixed price under the hedging agreement is above RON 450/MWh, the result of the above calculation formula for the solidarity contribution would in fact be greater that the gross revenue realized by the hedging counterparty in a given settlement month (ie, assuming an energy swap where the producer holds the floating rate position and the counterparty holds the fixed rate position).

Another important obligation introduced by the Draft Law is that financial derivatives (hedging) agreements have to be notified to the Financial Supervisory Authority (ASF) and/or the National Agency for Tax Administration (ANAF), within two business days from the date of entry into force of the Draft Law (ie, for agreements already in force at such date), respectively two business days from signing (ie, for agreements concluded afterwards).

Other changes to the calculation mechanisms for the solidarity contribution include:

1. for revenues derived from production:
2. for revenues derived from trading, the only notable change is that quantities resulting from import and/or from the intra-EU area are exempted from the scope of the contribution, at their first trading.

• electricity sold by producers which does not result from the production activity (ie, purchased on the market) is eliminated from the scope of the contribution formula for production activities, and would thus have to be declared and paid in accordance with the separate formula applicable for trading activities;
• revenues from financial transactions are no longer included under the definition of the monthly revenues variable used in the calculation formula;
• the monthly expenses variable used in the calculation formula will be comprised of:
  • balancing expenses, up to 5% of the value of the electricity physically delivered from own production;
  • expenses with financial derivatives (hedging) agreements in the Energy sector;
  • expenses with CO2 certificates corresponding to the produced electricity which is sold otherwise than through the centralized acquisition mechanism provided under Annex 11 of GEO 27/2022.