The State Energy and Water Regulatory Commission announced its proposal for the prices in the electricity sector for the first year of the new regulatory period starting this year. The weighted average tariff of CEZ Distribution is increased by 0.6% which translates into BGN 5.6m higher distribution revenues compared to the previous regulatory decision from 5 March this year. However, compared to the last year decision it is still a reduction of 11.6% (down by BGN 37m). On the cost side, the electricity price which the company will pay for technological losses will be reduced by 3.4% (ca BGN 5.1m lower cost) compared to March decision and by 4% (ca BGN 6m lower cost) compared to 2012 decision. The new tariffs reflect the lowering of the return on capital for the new 2-year regulatory period to 7.01% from 12% previously (minus 34.2m compared to 2012 decision), the increase of the approved operating expenses by BGN 63.9m, the increase of the approved depreciation expenses by BGN 3m and the decrease of the approved technological losses to 10% from 12% (minus ca 27m compared to March’13 decision) and from 15% (minus ca BGN 69m compared to 2012 decision). Our calculations show that the gross margin of CEZ Electro will remain near previous decision level of ca 2.5% and lower than 2012 level of ca 3%. The supplied electricity is expected to decline by 19%, which will probably be a result of the government strategy to push the business to the free market.