Effective 15 July electricity and heat retail prices will increase by up to 28% and 39%, respectively, per resolution of 30 June of the Energy Regulatory Authority (ERA). The resolution introduced progressive block tariffs for electricity and updated the night time tariff. Nighttime tariffs are lower because consumption at that time is low. The new tariff design rationalized the time-of-use tariffs by increasing the night time tariff up to the minimum or floor price and introduced an additional new tool, progressive electricity tariffs, for energy conservation and demand side management thereby protecting vulnerable consumers from prices they cannot afford.
Under the progressive electricity retail tariff, consumers will pay 60 MNT per kWh used up 150 kWh; 64 MNT per kWh used up to 250 kWh, and 68 MNT per kWh for consumption exceeding 250kWh per month. Equivalent monthly block tariffs for ger residents using the same consumption of electricity are MNT 58, 62, and 66 per kWh, respectively. Thus, ger dwellers using less than 150 kWh per month can expect to pay up to MNT 8,700—2 MNT less per kWh than non-ger residents.
The ERA believes that such a differentiated tariff is justified due to cross-subsidy from electricity to heat. The ERA set lower tariffs for the Trolleybus Company, Altan Taria, Ulaanbaatar Guril, Talkh Chiher and Atar Urgu companies to support the GoM’s initiative to protect the general public from soaring inflation.
The current increase in retail prices was an initial step to provide some financial relief to the five combined heat and power companies (CHPs) in the Central Energy System. Recent substantial increases in coal prices—29.6% for Baganur coal, 27.3% for Sharyn Gol coal and 34.1% for Shivee Ovoo coal—and the recent and on-going expansion of electricity service to soums have exacerbated the already precarious financial situation of these companies.
Current retail electricity and heat tariffs do not cover the cost of service and across-the-board subsidies are used to keep these services running as best as possible. The progressive block tariff recently approved by the ERA keeps tariffs low for lower income consumers but takes steps to bridge the gap of between cost of service provided and what higher income bracket consumers pay. An estimated 60 percent average tariff increase in real terms would be required to cover the cost of service.
ERA’s recent tariff rationalization efforts are a part of the Retail Tariff Reform Plan developed jointly by the ERA and EPRC. To be accomplished by 2012, the Plan includes continued rationalization of the retail tariff design through the introduction of demand and customer charges, the conduct of load research, reduction of cross-subsidies, tariff setting at cost recovery levels, revisions of consumer classes and other activities designed to improve the quality of service delivery.
Full details on the progressive tariff block structure by type of consumer, and region are found at the ERA’s website: http://www.era.energy.mn/mon/index.php.