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VKG ELEKTRIVÕRGUD OÜ's activity report 2022

The main activities of VKG Elektrivõrgud OÜ are: • provision of electricity network service through the distribution network; • sale of electricity.

The company provides network services in Ida-Virumaa and the service area covers the territories of the following municipalities: Narva city, Narva-Jõesuu city and Sillamäe city. The company sells electricity to consumers all over Estonia regardless of the region.

In September 2022, AS Kirde Elekter became the owner of VKG Elektrivõrgud OÜ. AS Kirde Elekter acquired a part of VKG Elektrivõrgud OÜ with a nominal value of 3,195,583 euros, which constitutes 100% of the share capital of the merger, based on the division plan of Viru Keemia Grupp AS. The acquisition of VKG Elektrivõrgud OÜ by AS Kirde Elekter does not bring about changes in the daily economic activities of VKG Elektrivõrgud OÜ.

Significant events in 2022 had a very negative impact on the company's economic activities and results due to high electricity exchange prices: • the cost of electricity purchased to cover network losses increased significantly; • in order to fulfill existing fixed-price electricity sales contracts, it was necessary to buy electricity at significantly higher exchange prices than the sales prices.

Network services

During the year, the company repeatedly coordinated network charges with the Competition Authority, mainly due to the increase in the price of electricity purchased to cover network losses and the rapid growth of operating costs caused by inflation. Despite repeated changes in network charges, the price of electricity purchased to cover network losses, as calculated in network charges, did not correspond to the significantly higher price of electricity actually paid by the company, as a result of which the company suffered a large financial loss. This was due to the following circumstances: • the rise in electricity prices (exchange prices) continued throughout the year, as a result of which actual prices moved further and further away from the coordinated prices; • The Competition Authority bases the calculation of the electricity price on the average actual price of the last 12 months, as a result of which the more expensive prices of recent months were offset by cheaper prices a year ago; • the period for notifying consumers of new network charges is relatively long (90 days).

According to the Electricity Market Act, the network operator should not be able to suffer a loss, as network charges should be designed to ensure continuously: • coverage of necessary variable and operating costs; • investments for the fulfillment of operational and development obligations; • compliance with environmental requirements; • compliance with quality and safety requirements; • justified return on the entrepreneur's invested capital.

Essentially, the emergence of such a situation points to the bottlenecks in the single methodology for calculating electricity network charges developed by the Competition Authority.