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Energy prices set to soar in 2007


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Domestic consumers are to bear the brunt of the government’s policy to subsidise industry with cheap power.

The average electricity consumer in Portugal could be stung by an extra 5.5 euros on the monthly bill next year, following a proposal put forward by energy regulator Entidade Reguladora do Sector Eléctrico (ERSE). This could mean that the average domestic electricity bill in Portugal could rise by as much as 15.7 per cent next year.

The increase will affect more than 90 per cent of domestic consumers – 5.3 million customers from a total of 5.9 million.

The price hikes, which had been anticipated for some time as a direct consequence of the European Union’s demand that Portugal liberalise her electricity market, caught the government by surprise.

Electricity prices in Portugal were expected to rise once the monopoly of part government-owned Electricidade de Portugal (EDP) was broken and market forces came into play. The Minister for the Economy, Manuel Pinho cautiously said that the government would analyse the situation before the year was out.

It was earlier in the summer that the government changed energy pricing legislation for commercial electricity use to maintain prices as low as possible for business and industry, for the sake of national economic competitiveness.

Given the impact of rising fuel prices worldwide, this change has put pressure on EDP to put the prices of ordinary domestic bills up which, for the first time, have ceased to be protected from inflationary pressures to keep prices down.

Although the ERSE proposal is not yet definitive, the government has little room for manoeuvre against the proposed price increases, which will be agreed by December. If the government forces the issue by artificially keeping prices down and therefore subsidised, it will have to do so by changing the law.

By doing this, the independence of the independent regulator and the future of market liberalisation, which the EU is demanding, would become compromised.

One option for the government is to increase the time period needed to pay off the 399 million euro deficit that was caused by keeping prices artificially low in 2006 to five years.

However, ERSE favours transferring a third of the deficit to 2007 prices, paying off 132 million euros of the debt, while leaving the other 264 million euro debt and interest to be cleared in coming years.

President of ERSE, Jorge Vasconcelos, said that enlarging the payment date limit from three to four years would only add one per cent onto the total debt.

The increase in costs of energy production would have to be absorbed by EDP and Rede Eléctrica Nacional (REN) and passed on to the ordinary domestic customer.

Part of the reason that electricity costs are also set to rise, apart from increased petroleum and oil prices, is the government’s investment in sustainable alternative energy sources, which although kinder to the environment are, as yet, expensive to buy and set up.

ERSE’s proposals have been widely criticised by consumer and industry watchdogs including DECO, warning of the dangers of changing the law in order to allow electricity prices to rise above the level of inflation. In DECO’s analysis, a typical family of four with a contract of 13.8 kVA (Kilovolts Amprere) and a monthly bill of around 50 euros, could find their bill increasing by 15 euros a month or 180 euros a year. DECO believes that it is industry that should carry the cost for renewable energy sources and not the general public, because they are the largest consumers.

Luís Felipe Pereira, President of the Association for Industrial Electricity Consumers, said pushing the burden onto the shoulders of commerce and industry would not only harm Portugal’s competitiveness, but would only aggravate the gulf in pricing between Spanish and Portuguese power suppliers by pushing up prices by as much as nine per cent.

Graça Cabral, a spokesman from DECO told The Resident: “There are also rumours floating around that the gas and water utility service prices too are set to rise in 2007, but so far the companies involved have said they have no plans to increase prices above the level of inflation as they do on a yearly basis.”

In reaction to the uproar over the 15 per cent increases in electricity tariffs for the ordinary domestic consumer, the Minister of the Economy, Manuel Pinho said on Friday that legislation would be revised so that prices would only rise 7.85 per cent or half of the increase announced by the Portuguese energy regulator ERSE.